GST Council extends one-time option on rates for affordable housing

The GST Council at its meeting today decided to give a one-time option to promoters of projects offering affordable housed to continue to pay tax at the old rates (effective rate of 8 per cent or 12 per cent with ITC) on ongoing projects, ie, buildings where construction and actual booking have both started before 1 April 2019, which have not been completed by 31 March 2019.

The option should be exercised once within a prescribed time frame and where the option is not exercised within the prescribed time limit, new rates will apply.
The new tax rates, which will be applicable to new projects or ongoing projects which have exercised the above option to pay tax in the new regime are as follows:
New rate of 1 per cent 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 GSTC (area 60 sqm in non-metros / 90 sqm in metros and value up to RS45 lakh); and
  • Affordable houses being constructed in ongoing projects under the existing central and state housing schemes and are eligible for concessional rate of 8 per cent GST (after 1/3rd land abatement).
New rate of 5 per cent GST without input tax credit would be applicable on construction of:
  • All houses other than affordable houses in ongoing projects whether booked prior to or after 1 April 2019. In case of houses booked prior to 1 April 2019, new rate shall be available on installments payable on or after 1 April 2019.
  • All houses other than affordable houses in new projects.
  • 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 per cent of total carpet area of all apartments.
The new tax rates of 1 per cent (on construction of affordable) and 5 per cent (on other than affordable houses) shall be available subject to following conditions:-
  • Input tax credit shall not be available – 80 per cent of inputs and input services (other than capital goods, TDR/JDA, FSI, long term lease (premiums)) shall be purchased from registered persons. On shortfall of purchases from 80 per cent, tax will be paid by the builder at the rate of 18 per cent on RCM basis. However, tax on cement purchased from unregistered person shall be paid at the rate of 28 per cent under RCM, and on capital goods under RCM at applicable rates.
  • Ongoing projects (buildings where construction and booking both had started before 1 April 2019) and have not been completed by 31 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 (refer to para 4(ii)) extrapolates ITC taken for percentage completion of construction as on 01.04.2019 to arrive at ITC for the entire project. Then based on percentage booking of flats and percentage invoicing, ITC eligibility is determined. Thus, transition would thus be on pro-rata basis based on a simple formula such that credit in proportion to booking of the flat and invoicing done for the booked flat is 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 at the rate of 12 per cent with ITC even after 1 April 2019) to the total carpet area of the project.
  • The following treatment shall apply to TDR/ FSI and Long term lease for projects commencing after 1 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 per cent of value in case of affordable houses and 5 per cent 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. 
  • 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 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.
  • The decisions of the GST Council will be given effect to through Gazette notifications/ circulars which alone shall have force of law.