Gurugram:   The real estate sector plays an important role in building nation’s economy. This sector is responsible for the generation of direct and indirect employment. It contributes to the growth of industries associated to it such as building, construction and many more. The State and Central government is actively bringing new initiatives to drive the growth of real estate sector. One of such initiative is related to Goods & Services Tax rate. The new plan has been laid out for the revision of the Goods & Services Tax for the properties which are under-construction.              

The real estate industry attracts Good & Services Tax at the nominal rate of 18 percent. In case of under-construction and commercial properties, the effective GST rate is 12 percent. This is applicable only when there is involvement of transfer of property in land or undivided share of land to the buyer with full input tax credit (ITC). The GST rate is 18 percent on two-third of the property amount. The remaining one-third of the amount will be deemed as the value of the land or the undivided share of land supplied to buyer. As stated by government officials, the builder can pass the tax burden to the buyer post accounting for ITC.

The GST is not applicable on ready-to-move-in and completely constructed projects. Due to this home buyers are attracted to such properties resulting in low demand in under-construction projects. According to government resources, under-construction properties face an additional challenge since NBFC’s are not allowed to lend.

 To facilitate the demand of under-construction properties, the state and central government has proposed revision in GST rate. Under this new proposal, the new GST rate is lowered to 12 percent. Due to this the effective rate will become 8 percent because of abatement on account of land cost.

There are two options proposed as follows:

  • Levying 5 percent without ITC only when builder establishes that he purchased minimum of 80 percent material from GST registered supplier
  • Levying 12 percent with ITC

The proposal will not be directly discussed in GST Council. It will be first scrutinized by the Law Committee and the Fitment Committee.  After that the GST Council will take final decision in its meeting. This meeting is expected to be scheduled in January 2019.

The State Government projects for affordable housing such as Jawaharlal Nehru Urban Renewal Mission, Rajiv Awas Yojana, Pradhan Mantri Awas Yojana attracts the GST rate of 8 percent. Under this new proposal, builder or developer of such projects would not need to pay GST in cash. This is because they would have enough ITC in their of books of accounts to pay the output GST after offsetting ITC.

This new proposal has created hope in market since along with the tax cut and it is also promoting the business of registered dealers. It is expected to fulfil the long time demand of resident buyer for reduction in GST. It seems new year will start with positive note for home buyers, builders and developers.