The GST Council held its 34th meeting on 19th of March, 2019. The Finance Minister of India, Mr. Arun Jaitley chaired the meeting of the GST council. The meeting discussed the operational matters for implementation of the recommendations made by the Council in its 33rd meeting held on 24th February, 2019, for lower GST rate of 5% on under construction residential projects and 1% on the affordable housing sector.
The Council has decided the transitional modalities for this implementation as follows:
1. Options in respect of the on-going projects:
The promoters will be given a one-time option to choose between the old rates (12% with ITC or 8% without ITC) on ongoing projects/ unfinished projects as on 31.03.2019 or the new tax rates which become effective from 01.04.2019.
This option is to be exercised by the promoters within the prescribed timeframe, and if not prescribed within the time limit, the new rates shall become applicable.
2. New Tax rates:
The new tax rates which will be applicable to new projects or to the ongoing projects (which have exercised the above option) are as follows:
i. The new tax rate of 1% without ITC on affordable housing projects shall be available for:
a. All houses which meet the definition of affordable houses as decided by GSTC (area 60 sqm in non-metros / 90 sqm in metros and value up to RS. 45 lakhs), and
b. Affordable houses being constructed in ongoing projects under the existing central and state housing schemes presently eligible for concessional rate of 8% GST (after 1/3rd land abatement).
ii. The new tax rate of 5% without ITC shall be applicable to construction of:
a. All houses other than affordable houses in ongoing projects whether booked prior to or after 01.04.2019. In case of houses booked prior to 01.04.2019, new rate shall be available on instalments payable on or after 01.04.2019.
b. All houses other than affordable houses in new projects.
c. Commercial apartments such as shops, offices etc. in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.
3. Conditions for availing the new tax rates:
a. Input Tax Credit will not be available.
b. 80% of inputs and input services (other than capital goods, TDR/ JDA, FSI, long term lease (premiums)) shall be purchased from registered persons. On shortfall of purchases from 80%, tax shall be paid by the builder @ 18% on RCM basis. However, Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates.
4. Transition for ongoing projects opting for new tax rates:
a. Ongoing projects (buildings where construction and booking both had started before 01.04.2019) and have not been completed by 31.03.2019 opting for new tax rates shall transition the ITC as per the prescribed method.
b. The transition formula approved by the GST Council, for residential projects (refer to para 4(ii)) extrapolates ITC taken for percentage completion of construction as on 01.04.2019 to arrive at ITC for the entire project. Then based on percentage booking of flats and percentage invoicing, ITC eligibility is determined. Thus, transition would be on pro-rata basis based on a simple formula such that credit in proportion to booking of the flat and invoicing done for the booked flat is available subject to a few safeguards.
c. For a mixed project transition shall also allow ITC on pro-rata basis in proportion to carpet area of the commercial portion in the ongoing projects (on which tax will be payable @ 12% with ITC even after 1.4.2019) to the total carpet area of the project.
5. Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019:
The following treatment shall apply for TDR/ FSI and Long Term lease for projects commencing after 01.04.2019.
a. Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them. Exemption of TDR, FSI, long term lease (premium) shall be withdrawn in case of flats sold after issue of completion certificate, but such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses. This will achieve a fair degree of taxation parity between under construction and ready to move property.
b. The liability to pay tax on TDR, FSI, long term lease (premium) shall be shifted from land owner to builder under the reverse charge mechanism (RCM).
c. The date on which builder shall be liable to pay tax on TDR, FSI, long term lease (premium) of land under RCM in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate.
d. The liability of builder to pay tax on construction of houses given to land owner in a JDA is also being shifted to the date of completion.
Decisions from para (a) to (d) are expected to address the problem of cash flow in the sector.
6. Amendment to Input Tax Credit Rules:
ITC rules shall be amended to bring greater clarity in terms of computation of monthly and final determination of ITC and reversal thereof in real estate projects. The amendment would provide procedure for availing ITC in respect of Commercial units as such units would be eligible for ITC in a mixed project.
The above operational details would be given effect to through a Gazette Notification/ Circulars subsequently to become the law under force.