GST Council approves transition rules to implement new tax rates for real estate sector
The meeting, chaired by Finance Minister Arun Jaitley, gave builders a choice between old tax rates and new ones for under-construction residential projects.
The Goods and Services Tax Council on Tuesday gave builders a choice between old tax rates and new ones for under-construction residential projects to help resolve input tax credit issues. The 34th meeting of the council laid out transition rules for the implementation of new tax rates for the real estate sector. The meeting was chaired by Union Finance Minister Arun Jaitley and including representatives of all states.
Revenue Secretary AB Pandey said builders will get a one-time option to continue paying tax at the old rates of 8% or 12% with input tax credit on ongoing projects where construction and bookings both started before April 1, 2019, but which will not be completed by March 31, 2019. The new tax rate of 1% for affordable houses and 5% for others, without input tax credit, will apply on new projects.
“The 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,” said Pandey, PTI reported.
The decision will help to address worries and potential disputes on a number of issues, such as the loss of input credit and pricing that were bound to increase due to the change. Pandey said the GST Council has decided to give reasonable time to developers to transition and the matter will be decided in the next few days in consultation with states.
The council clarified that projects with up to 15% commercial space will be treated as residential properties. This will resolve issues in cases where buildings have commercial features such as clubs and restaurants as well as in case of residential-cum-commercial projects.
The council also approved the formula for calculating Input Tax Credit. “ITC rules shall be amended to bring greater clarity on a monthly and final determination of ITC and reversal thereof in real estate projects,” it said. “The change would clearly provide a procedure for availing input tax credit in relation to commercial units as such units would continue to be eligible for input tax credit in a mixed project.”
Pandey added that the next meeting of the GST Council will be held after the Lok Sabha elections. However, if a situation arises, a meeting can be called with permission of the Election Commission, he said.