Transition Provision for Reduced rate of GST on Housing projects: GST Council 34th Meeting

GST council principally agreed on transitional provisions for a reduced rate of GST for Housing projects. The legal notification shall be issued in due course.

GST Council met for the 34th time today and the following decisions were taken with respect GST On housing during the meet:

1. The ongoing projects (Started before 1st April 2019) shall have an option either to opt for the new rates (1% for affordable housing or 5% other than affordable housing) without ITC or continue to pay tax at the current rate (8% and 12% respectively) with ITC.

If the ongoing projects want to continue with the old scheme, they will have to opt for the same within the prescribed timeline.

Further, if the ongoing projects opt for the new scheme, For already booked houses, the new rate shall be applicable for the outstanding Installments. That's a massive relief for the Homebuyers if the builder opts for the new scheme which is also very unlikely.

2. For all the projects starting on or after 1st April 2019 following rates shall be applicable with the following condition:

i. The new rate of 1% without input tax credit (ITC) on construction of affordable houses 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 rate of 5% without input tax credit shall be applicable on the construction of,-

1. all houses other than affordable houses in ongoing projects whether booked prior to or after 01.04.2019.
2. all houses other than affordable houses in new projects.
3. 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

iii. The input tax credit shall not be available,

iv. 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.

3. Proportionate ITC reversal for Ongoing projects who opts for New 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 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, the transition would thus be on pro-rata basis based on a simple formula such that credit in proportion to the 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 the 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.

4. Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019

The following treatment shall apply to 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.