The GST Council has cleared the way for lower tax rates on the real estate sector and has offered options to the developers of under-construction properties to choose their own tax rates, providing the developers a much needed relief amid shrinking margins and poor cash flows.
The council, in its 34th meeting held on Tuesday, decided on a transition plan and related issues for the implementation of lower GST rates for the real estate sector. The developers of under construction project can now choose between the tax rate of 12 per cent with input tax credit facility or 5 per cent without it, and in the case of affordable housing projects between 8 per cent with input tax credit 1 per cent without it. The new tax structure would be effective from April 1, 2019, Revenue Secretary A B Pandey said.
“The approval of the scheme as an optional one for construction projects underway, was one of the key asks of the real estate industry. This go ahead by the GST Council brings quite a relief for this sector in handling transition issues in specific,” said Abhishek Jain, Tax Partner, EY India.
In the previous meeting, the council had slashed tax rates for under-construction property to 5 per cent and affordable homes to 1 per cent and removed input tax credit. This decision was directed to be a buyer centric move as the affordable housing rates were without input tax credit, said Paradigm Realty Managing Director Parth Mehta.
The decision to avail input tax credit in ongoing under construction on proportionate basis will certainly serve as some breather for developer who are already facing various headwinds resulting in shrinking margins and poor cash flow, said Parth Mehta.
The move will allow developers to price the new launches at higher rate to protect the margins which will shrink if rates are maintained because of abolishment of input tax credit and higher GST for input materials, Mehta added. “Reasonable time for transition will be given to developers in consultation with states,” said Revenue Secretary A B Pandey.
The GST collection in February fell to Rs 97,247 crore from Rs 1.02 lakh crore in the previous month, according to the Finance Ministry. It seems worrisome for the government which has already exceeded its fiscal deficit by 21.5 per cent during the first ten months of this fiscal year 2018-19.
“The total gross GST revenue collected in February 2019 is Rs 97,247 crore of which Central GST is Rs 17,626 crore, State GST (SGST) is Rs 24,192 crore, Integrated GST (IGST) is Rs 46,953 crore and Cess is Rs 8,476 crore,” said the Finance Ministry.