At present, real estate sector has a three-layered structure for GST.
First, there is no GST on sale of complex/building and ready to move-in flats where sale takes place after issue of completion certificate by the competent authority.
Second, GST is applicable on sale of under construction property or ready to move-in flats where completion certificate has not been issued at the time of sale. Card rate for such flats is 18 per cent, but effective rate is 12 per cent after abatement of 33 per cent (cost of land).
And, the third structure is affordable housing where the effective rate is 8 per cent. Both these rates are with full input tax credit (ITC).
Two GST options which may come up soon:
The Joint Law and Fitment Committee of the Council deliberated on two options for GST rate. First option was the GST rate of 5 per cent without ITC for construction of all houses including the affordable housing under various schemes.
The second option comprised three structures: (i) 3 per cent without ITC (effective rate after 1/3rd deduction towards value of land) for construction of houses/flats in a residential complex where gross amount charged from a buyer for the house, including stamp duty, in metro cities with of population of 10 lakh or above is up to ₹45 lakh and at other centres up to ₹3 lakh. (ii) 3 per cent without ITC for affordable housing projects, where the agreement of sale signed before February 1, 2019. (iii) 5 per cent without ITC for all under construction flats. All these rates are effective after 1/3rd deduction towards value of land.
Though the committee felt that such a proposal will provide better perception of the rate of taxation and also address the concern of the buyers that builders are not passing the benefit of ITC to the customers, still it expressed some concerns. Firstly, it said that such a proposal will lead to price rise of the residential sector, particularly in the lower cost segment, in view of the fact that present tax payment in cash is less than 5 per cent of the gross value, while in the high end segment there may be a reduction in prices.
The committee also said that the control in input side by introducing the clause of minimum of 80 per cent purchase from registered tax payers in not as strong as maintaining the integrity of credit flow. “To bring real estate into GST will require a journey in exactly the opposite direction,” it mentioned, while adding that compliance of composite projects (residential plus commercial) would become difficult.