New Delhi/Mumbai: The GST Council on Tuesday sought to address builders’ concerns related to their inventory of under-construction housing units by allowing them to choose between the existing higher tax rate with input credit and the new flat rate that will be effective from April.
Builders can opt for the existing 12% tax rate for homes that are under construction as on 31 March, but will have to pass on the benefits of input tax credit to customers, or choose the new GST rate of 5%, effective 1 April.
Similarly, in case of under-construction affordable homes, they can choose between the existing rate of 8% and the new rate of 1%, the federal indirect tax body said.
Builders may now, on a case-to-case basis, decide what is the best option for them to exhaust the tax credits on their books, and keep the final tax liability low.
The GST Council, however, made it clear that for new projects starting 1 April, the 5% and 1% GST rates would apply.
The move could boost sentiment in the residential real estate sector, which has been grappling with high unsold inventory.
Revenue secretary Ajay Bhushan Pandey, who briefed reporters after the GST Council meeting, said the window for choosing between the existing and the new GST rates for under-construction flats would be notified soon.
The move offers relief to builders, who were facing the prospect of losing tax credits. “Builders get the best of both worlds," said an industry expert, requesting anonymity. The option, however, comes with an anti-tax evasion rider: to take advantage of the tax rebates under the 12% and 8% rates, builders will have to procure 80% of all raw material and services only from registered suppliers.
“The choice of selecting the GST regime will depend on respective project dynamics. The ones with healthy sales traction are likely to continue with the earlier regime to maintain their profitability," said Shishir Baijal, chairman and managing director of Knight Frank India, a real estate advisory firm.
Anuj Puri, chairman and managing director of Anarock Property Consultants Ltd, said the GST Council’s decision was a welcome move. “With this decision, it has carefully side-stepped conflict with both builders and buyers."
Puri, however, added that the announcement would not have much impact on homebuyers.