The confusion regarding the government's decision to reduce the Goods and Services Tax (GST) on new homes has been finally lifted. The decision to reduce GST on under-construction buildings to 1 per cent and 5 per cent of the cost of construction had raised several questions among builders and buyers. The decision on February was intended to lift the real estate sector out of its long slowdown and give relief to both buyers and builders.
The rates in force earlier were 8 per cent for 'affordable' houses and 12 per cent for premium ones. Affordable houses are those valued at less than Rs 45 lakh and with a built-up area of up to 60 sqm in the metros and up to 90 sqm in the rural areas including second-rung cities. The notification on the new rates maintains the same classification of 'affordable' and 'premium' houses. The new GST rate is applicable only on the construction cost, which means the tax calculation excludes the cost of land giving some relief to the buyer.
The authorities clarify that there needs to be no confusion regarding projects that began after March 31. On such projects, the new rates of 1 per cent GST on affordable homes and 5 per cent on premium homes are applicable, according to the notification. The builder is not allowed to claim an input tax credit, which means getting a refund on the tax paid while purchasing construction materials and related services.
Of course, there has been some confusion lately regarding projects that began before March 31 and remained incomplete until April 1, 2019. The authorities have given the builders the option of opting for the old rate or the new one. If they opt for the old rate (8 per cent and 12 per cent) they will have the option of getting input credit refund, which they can pass on to the customer. Of course, the new rates will not entail them to claim input credit refund.
The following are the major points regarding the new GST regime:
- GST rate: The new tax rate is 1 per cent for affordable houses and 5 per cent for premium houses.
- Classification: Affordable house is a house or flat costing up to Rs 45 lakhs with the rider that it shall not have carpet area greater than 600 sqm if it is in the designated metro areas or 900 sqm if in the non-metro areas.
- Cutoff date: April 1. All flats of projects launched on or after April 1 will invite the new rate.
- Old houses: All flats or houses that got a completion certificate from the relevant authorities on or before March 31 will attract GST at the older rate of 8 per cent on affordable houses and 12 per cent on premium ones.
- Under-construction projects: The projects that began construction on or before March 31, 2019, or did not receive completion certificate before April 1, 2019, are considered an under-construction project, irrespective of what stage of construction they are at.
- Options for under-construction projects: The builder can choose the old or new rate for a project under construction. But the input tax credit facility would be available only if the builder chose the older rates of 8 percent and 12 percent.
- Input tax credit: The builder is allowed to claim a refund of the taxes paid for the construction materials and services. The input tax credit facility is available only if the builder chose the older rates.
- Commercial properties: The new notification mandates a 5 percent GST rate for commercial space like shops and offices within a residential project. For under-construction projects, buyers may opt for the older 12 percent rate and claim an input tax credit.
- Payments made after March 31, 2019: If a part of the payment for the under-construction property falls after March 31, 2019, that part will attract the new rate, unless the builder has opted to go for the old rate.