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India Finalizes Details Of New Real Estate GST Regime

by Mary Swire,, Hong Kong

26 March 2019

India's GST Council has put flesh on the bones of its plans to introduce a new goods and services tax regime for real-estate transactions.

At its earlier 33rd meeting, the Council approved the introduction of a lower GST rate of one percent for purchases of "affordable houses" and a five percent GST rate on the construction of houses other than "affordable houses." Input tax credits (ITCs) are not allowed.

At its 34th meeting, held on March 19, 2019, the Council agreed that developers should be given a one-time option to continue to pay tax at the old rates (effective rate of 8 percent or 12 percent with ITC) on ongoing projects (buildings where construction and actual booking have both started before April 1, 2019) which have not been completed by March 31, 2019.

It also agreed the new one percent for affordable housing will be available for:

  • All houses which meet the definition of affordable houses as decided by GST Council (having an area of up to 60 square meters in metropolitan areas, or 90 square meters in non-metropolitan areas with a value up to INR4.5m (USD65,400)); and
  • Affordable houses being constructed in ongoing projects under the existing central and state housing schemes presently eligible for the concessional rate of eight percent GST (after 1/3rd land abatement).

Meanwhile, the new rate of five percent without input tax credit will be applicable on construction of:

  • All houses other than affordable houses in ongoing projects whether booked prior to or after April 1, 2019. In the case of houses booked prior to April 1, 2019, the new rate will be available on installments payable on or after April 1, 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 percent of the total carpet area of all apartments.

The new tax rates will be available subject to the following conditions:

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

Comprehensive guidance on transitional rules has been released on the Government's website.

Further changes include that the ITC rules will 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 taxpayers availing themselves of an input tax credit in relation to commercial units, as such units would continue to be eligible for input tax credits in a mixed project.

TAGS: tax | India | real-estate | goods and services tax (GST) | tax credits | tax rates | construction | services

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