For three generations, real estate has traditionally been a favoured choice of investment for Mumbai's Jain family. The family's youngest member, Navneet Jain, 32, also has property investments in major metro cities across the country.
Speaking about the changes that GST has brought to the real estate sector, Navneet says that the revolutionary tax reform has, to a large extent, eliminated the confusion of a multi-taxation system. This has made things a lot simpler and transparent. But at the same time, GST on real estate continues to confuse some property buyers.
Plus, with new GST- related changes and revisions in the real estate space, there may be something you've missed. But don''t worry; in this article, we'll get you acquainted with the latest update in GST on real estate.
Until March 31, 2019, the GST rate on residential real estate in the affordable housing segment was 8% with an Input Tax Credit (ITC). For residential properties falling under the non-affordable housing segment, the GST rate was 12% with ITC. These were applicable under-construction homes where the completion certificate wasn't issued at the time of sale. However, these rates have been recently revised by the government.
On February 24, 2019, the GST Council, came up with a new GST slab for the real estate sector.
The council notified that with effect from April 01, 2019, new GST rates on real estate will be 1% without Input Tax Credit for the affordable housing segment, and 5% without Input Tax Credit for the non-affordable housing segment. All under-construction projects, as of 31st March 2019, can shift to the new GST slab.
Moreover, the Council has also revised the size of what constitutes the term "affordable home". According to the new definition, homes with carpet areas 60 sq. mt in metro cities and 90 sq. mt in non-metropolitan areas, valued at up to Rs 45 lakh, will now be categorised as affordable housing. Previously, the limit was a uniform carpet area of up to 60 sq metres for a house to be qualified under the affordable housing segment.
Industry observers believe that the council's decision to make a reduction on GST on real estate along with the changes in the affordable housing scheme will supercharge the sector and will act as a big boost for buyers. Since the new rates apply from April 01, 2019, the sector is likely to see a rise in sales figures in the next financial year.
A simpler GST structure will protect the interests of property buyers, as it will eliminate the problem of Input Tax Credit benefits not getting passed on to the end users. The new GST slab of 1% might also lead to better and fair pricing of residential properties in the affordable housing segment. The GST council believes that there will be greater compliance from developers because of the simplified tax structure.
For under-construction housing units in the affordable housing segment, developers can choose the existing 8% rate with Input Tax Credit, or the new rate of 1% without Input Tax Credit, effective April 01, 2019.
Likewise, for under-construction properties in the non-affordable housing segment, builders can choose either the existing 12% rate or the new 5% GST rate.
If builders opt for the higher tax rate with Input Tax Credit, they will have to pass on the benefit of input tax credit to the buyers. They will also have to buy at least 80% of their raw materials from GST registered suppliers only.
The ability to choose the desired GST rate will enable developers to decide the best option for their under-construction inventory, as of March 31, 2019. The freedom to choose between the two options will offer huge relief to many developers, who are grappling with their unsold units.
The council has, however, clarified that GST at 5% and 1% will apply to all new projects starting from 1st April 2019. This means that developers could increase the base prices for their new constructions to offset the higher costs resulting from the withdrawal of Input Tax Credit.
As of now, the simpler GST structure looks promising for the residential real estate sector. Considering that the new tax format is still settling down, it will take some time to test its real impact on India's real estate industry. So while the rate cut and the revision of the affordable housing scheme do signal a positive change, we have to wait and watch.
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