A home buyer cannot decide which GST rate will be applicable on the amount remaining on an under-construction flat. A lowered duty was made applicable on April 1. Builders have time till Friday, May 10, to exercise a one-time option of sticking to the old rate or going for the new one.
The Finance Ministry has come out with Frequently Asked Questions (FAQs) on the new GST slabs for the real estate sector with clarification on 41 issues.
To a question on whether it is the buyer or builder who chooses between new and old tax rates, the Ministry has clarified that it is the builder who can exercise the option to pay tax on construction of apartments at the old rate of 12 per cent. This can be opted for by May 10 at the latest.
“If the builder does not exercises his option to continue to pay tax at the old rate…the effective GST rate applicable on all your (buyer) instalments payable to the builder on or after April 1, 2019, shall be either 1 per cent or 5 per cent, depending on whether the apartment is an affordable or other-than-affordable residential apartment,” it said.
If the builder chooses to stick to the old rates, the buyer will have to pay 8 per cent (for affordable) or 12 per cent (for others). The builder in this case gets input tax credit (ITC), which should be passed on to the buyer.
Based on the recommendation of the GST Council, a two-rate structure has been notified for under-construction flats or ready-to-move-in flats where the completion certificate has not been issued at the time of sale (buyers do not have to pay GST on completed projects). It prescribes 1 per cent GST for affordable houses and 5 per cent for others. There will not be any ITC. The new rates will be applicable on new projects (launched after April 1) and ongoing projects.
The FAQ has listed criteria for the project to be considered as ongoing (for which the builder can exercise a one-time option of sticking to old rates). These include the project commencing before March 31, 2019, the completion certificate not being issued, or first occupation of the project not taking place on or before March 31, and apartments that have been, partly or wholly, booked on or before March 31. Even projects receiving occupation certificates for just a part will be considered ongoing projects.
In case the promoter or builder does not exercise the option by May 10, it shall be deemed that he has opted for the new rates.
According to MS Mani, Partner with Deloitte India, it is now clear that even projects that commenced after the date of announcement of the lower rates but before March 31 could potentially take the benefit of ITC and apply the higher rate of 12 per cent to home buyers.
“It is also now clear that the RERA ( Real Estate Regulation and Development Act) registration of a project would be relevant for GST as well, since buildings in the same project can be separately registered in RERA and the builder can exercise the ITC option for one building and forego the same for another building,” he said.
via Home buyers have no say in choice of GST rate: FinMin – The Hindu BusinessLine