Under-construction residential projects get Centre's relief! GST Council allows options to choose tax rates

GST Council has given builders an option to choose between old and the new tax regime for the under-construction residential projects to help resolve input tax credit issues.

Projects with up to 15 per cent commercial space will be treated as residential property. (Image: AFP)

GST Council today has approved transition plan for the new rate structure

A deadline of March 31 has been given choose between the two taxation options

The GST council has agreed on providing reasonable time to developers.

GST Council Meet: In a major relief to the builders of the country, the all-powerful Good and Services Tax (GST) Council has given them an option to choose between the old and the new tax regime for the under-construction residential projects to help resolve input tax credit issues. However, these builders have been given a deadline of March 31 to choose between the two taxation options. The council, headed by Union Finance Minister Arun Jaitley and including representatives of all states, during the 34th GST Council Meeting in the national capital laid out transition rules for the implementation of new tax rates for the real estate sector. “Builders will get a one-time option to continue paying tax at the old rates (effective rate of 8 per cent or 12 per cent with Input Tax Credit or ITC) on ongoing projects (buildings where construction and actual booking have both started before April 1, 2019, but which will not be completed by March 31, 2019),” Revenue Secretary AB Pandey told reporters during a press interaction. The new tax rate of 1 per cent for affordable houses and 5 per cent for others, without ITC, will apply on new projects. The move is intended to remove the fear among builders and realty firms that they might lose accumulated input tax credit for under-construction projects. "GST Council today has approved transition plan for the new rate structure for real estate residential projects... from April 1, builders have to choose either of the options for which they will get time,” Pandey said. Further, on the time-frame for transition, Pandey said the council has agreed on providing reasonable time to developers. It was also informed during the press interaction that the matter would be decided in the next 15 days or one month after a detailed consultation with the states. The council also clarified that projects with up to 15 per cent commercial space will be treated as residential property. Speaking about the same, Deloitte India Partner M S Mani said the pragmatic move to segregate under construction projects from new projects would provide relief to builders who were worried about the loss of input tax credit. “This would also enable them to price the loss of input tax credits in the new projects. Reversal of Input tax credit on a proportionate basis would entail significant computational issues for builders as each project would be in various stages of construction and have differing pre and post-completion sale patterns,” Mani said. Mani also stated that these changes made by the GST Council would have a substantial impact on real estate sector adding the industry will have to work out which option works best and come up with the revised price structure quickly.

Published at : 20 Mar 2019 08:42 AM (IST)

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