The GST Council meeting through video conference today approved the norms for relief to the realty firms allowed the builders to choose between two different tax rates in case of incomplete residential projects. The new changes and reduced tax rates will be applicable from 1st April.
The Council, today decided to give builders the option of choosing the tax rate of 12% with input tax credit facility or 5% without it, and in the case of affordable housing projects, 8% with tax rebates or 1% without it, revenue secretary Ajay Bhushan Pandey said.
The choice of tax rates in case of buildings that are not completed as on 1 April has to be exercised within a specified time, which will be notified later, Pandey said.
It was decided that from 1st April, lower tax rates will apply for incomplete projects.
Tuesday’s decisions bring clarity on taxation of under-construction houses sold during the transition to the new tax system.
The last GST Council meeting had suggested reducing the levy on under-construction residential projects to 5 percent without an input tax credit from the current 12 percent. In the same meeting, the Council had decided to lower the GST on the under-construction houses from 12% to 5% and for affordable housing from 8% to 1% without input tax credit (ITC) benefit.
Speaking to Taxscan, Mr Jigar Doshi, Partner – Indirect Tax, SKP Business Consulting LLP said that, “By providing an option available between new rates without ITC and old rates with ITC, the council has sought to address the concerns of the industry on the tax scheme applicable to under-construction projects during the transition phase from 1 April. Realtors can evaluate and choose the best scheme which minimizes the tax cost on each building of the project. Those who opt for the reduced rates would invariably be required to reverse credits on proportionate basis the full impact of which will be known once the rules are notified. The requirement to source 80 percent of the supplies from registered dealers and mandating tax on reverse charge basis in case of shortfall shows that the government is serious on curbing tax evasion at the back end. The net impact, however, of the new scheme and the transitional provision on developers and home buyers would depend on case to case basis and the fine print of the rules notified.”
