The Goods and Services Tax (GST) Council will on Tuesday consider the transition provisions for builders as the reduced GST rate for real-estate is coming into effect from April 1. The new rates would be accompanied with denial of input tax credit (ITC) to the developers and subject to purchase of certain portion of inputs from GST-registered dealers.
The officials working on the proposal for Council’s consideration said that builders would be required to procure at least 80% of raw material — steel, cement, sanitary fitting, tiles, among others — from among the dealers in GST chain, which would help check large-scale evasion. Further, cost of any capital goods won’t be allowed to meet the requirement as these items are much more expensive compared to other inputs and could be used to circumvent the liability.
Additionally, the Council, which will meet via video conferencing, would also consider guidelines on dealing with buyers who have partly paid for under-construction houses at a higher GST rate. Also, some builders have used ITC from raw materials purchased earlier for an under-construction projects. A protocol dealing with such a situation is also being developed and would be brought before the Council. Tuesday’s meeting will be the Council’s last before the general elections.
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In February, the Council had approved GST rate cut for under-construction residential units to 5% from 12% and 1% from 8% for units falling under the definition of affordable housing. Further, while rate for regular housing will remain the same throughout the country, the Council said that houses in metro areas that are up to 60 square metre in carpet area and costing not more than `45 lakh will qualify for a 1% GST rate. For non-metro areas, the qualifying criteria has been set at carpet area of 90 square metre available at a cost of `45 lakh.
Archit Gupta, founder & CEO of ClearTax said: “Clarity is required on transition from old to new rate, especially vis-a-vis ITC credit of the old rates. Builders may likely be stuck with large ITC credits on unsold fully constructed property, some even pertaining to the previous indirect tax regime.”
After the last Council meeting, finance minister Arun Jaitley had said that the new rates were revenue neutral and will not cost the government any revenue but will provide fillip for the sector that has witnessed sluggish growth and piles of unsold inventory. A source said that the new rates would cover nearly one-third of all houses sold in tier-I cities while it would cover 95% of those sold in smaller cities.
However, many developers have raised concern that lower GST rates may not bring the base price of houses down as blocked ITC will not become a cost to them. They have raised concerns that in such an event the anti-profiteering authority could hold them responsible as has been the case for a couple of developers in the past.