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The 34th GST Council Meeting was held on the 19th of March 2019. The GST Council primarily discussed the operational details for implementation of the recommendations made at the 33rd meeting for the lower effective GST rate applicable for real estate.

In this blog, we will detail out the decisions taken by the GST Council at the 34th meeting.

Decisions at the 34th GST Council Meeting

Option in respect of Ongoing Projects

  • Promoters shall be given a one – time option to continue paying tax at the old rates (effective rate of 8% or 12% with ITC) on ongoing projects (buildings where construction and actual booking have both started before 1st April 2019), but which have not been completed by 31st March 2019
  • The option shall be exercised once within a prescribed time frame and where the option is not exercised within the prescribed time limit, new rates shall apply

New GST Rates

As per the 34th GST Council Meeting, the new tax rates which shall be applicable to new projects or ongoing projects, which have exercised the above option, are as follows:

  • New GST rate of 1% without input tax credit (ITC) – on construction of affordable houses shall be available for –
    • all houses which meet the definition of affordable houses as decided by the GST Council (60 square metres in metros / 90 square metres in non- metros and value up to INR 45 lakhs)
    • all affordable houses being constructed in ongoing projects under the existing central and state housing schemes presently eligible for concessional rate of 8% GST (after 1/3rd land abatement)
  • New GST rate of 5% without input tax credit (ITC) – on construction of –
    • all houses other than affordable houses in ongoing projects whether booked prior to or after 1st April 2019. In case of houses booked prior to 1st April 2019, the new rate shall be available on instalments payable on or after 1st April 2019
    • all houses other than those falling in the affordable segment in new projects
    • all commercial apartments such as shops, offices etc. in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than 15% of the total carpet area of all apartments

Conditions for the New GST Rates

At the 34th GST Council Meeting, the new GST rates of 1% (on construction of houses falling within the affordable segment) and 5% (on houses outside the affordable segment) shall be available subject to following conditions –

  • Input tax credit (ITC) shall not be available
  • 80% of inputs and input services (other than capital goods, TDR/ JDA, FSI, long term lease, premiums) shall be purchased from the registered persons
  • On shortfall of purchases from 80%, tax shall be paid by the builder @ 18% on RCM basis
  • Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates

Transition for ongoing projects opting for the new GST rate

  • Ongoing projects (buildings where construction and booking both had started before 1st April 2019) and have not been completed by 31st March 2019, opting for new tax rates shall transition the ITC as per the prescribed method
  • The transition formula approved by the GST Council, for residential projects will extrapolate the ITC taken for percentage completion of construction as on 1st April 2019, to arrive at ITC for the entire project. Then, based on percentage booking of flats and percentage invoicing, the ITC eligibility will be determined. Thus, transition would thus be on pro-rata basis based on a simple formula, such that the credit in proportion to booking of the flat and invoicing done for the booked flat will be available, subject to a few safeguards.
  • For a mixed project transition shall also allow ITC on pro-rata basis in proportion to carpet area of the commercial portion in the ongoing projects (on which tax will be payable @ 12% with ITC even after 1st April 2019) to the total carpet area of the project

Treatment of TDR / FSI and long-term lease for projects commencing after 1st April 2019

  • Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them
  • Exemption of TDR, FSI, long term lease (premium) shall be withdrawn in case of flats sold after issue of completion certificate, but such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses. This will achieve a fair degree of taxation parity between under construction and ready to move property
  • The liability to pay tax on TDR, FSI, long term lease (premium) shall be shifted from land owner to builder under the reverse charge mechanism (RCM)
  • The date on which builder shall be liable to pay tax on TDR, FSI, long term lease (premium) of land under RCM in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate
  • The liability of builder to pay tax on construction of houses given to land owner in a JDA is also being shifted to the date of completion.

Amendment to ITC Rules

As per the 34th GST Council meeting, the ITC rules shall be amended to bring greater clarity on monthly and final determination of ITC and reversal thereof in real estate projects. The change would clearly provide a procedure for availing input tax credit in relation to commercial units as such units would continue to be eligible for input tax credit in a mixed project.

How Tally will help in managing ITC

In consideration of the decisions made at the 34th meet, businesses would want to manage their ITC better – and Tally is committed to make it a seamless experience. Click to know more about how to configure ineligible ITC in Tally.ERP 9.

Watch this space for further GST updates.

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Pramit Pratim Ghosh

Author: Pramit Pratim Ghosh

Pramit, who has been with Tally since May 2012, is an integral part of the digital content team. As a member of Tally’s GST centre of excellence, he has written blogs on GST law, impact and opinions - for customer, tax practitioner and student audiences, as well as on generic themes such as - automation, accounting, inventory, business efficiency - for business owners.