Real estate industry Tuesday hailed the GST Council's decision to allow realty firms charge old GST rates from buyers in those projects where construction started before April 1, 2019, saying this will give relief to builders - who were worried about loss of input tax credit in the new tax regime.
Last month, the council had decided to cut GST rate on affordable homes to 1 per cent without input tax credit (ITC) from earlier 8 per cent with ITC. The GST on under-construction flats, which are not under the affordable housing segment, was reduced to 5 per cent without ITC from 12 per cent earlier with ITC. These rates will be effective from April 1.
While approving a transition plan for the implementation of new tax structure from next fiscal, the GST Council decided that the developers of residential projects, which are incomplete as on March 31, will have option either to choose the old structure with ITC or to shift to new 5 per cent and 1 per cent rates without ITC.
"The Real estate industry is particularly happy that the Government has taken all precautions to ensure a smooth and easy transition to the new regime of rates, and allowed the option to follow the existing rates for ongoing projects.
"The period of wait and watch as regards to GST for both the industry and the consumers is now over. We should expect colour to return to the real estate this Holi," CREDAI President Jaxay Shah said in a statement.
NAREDCO's President Niranjan Hiranandani said the GST Council addresses the transition issues on ITC for the ongoing projects with making it flexible for the developers to choose between the old GST v/s New GST schemes.
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The option to developers will help avoid operational hassles, he said, adding that the developers who choose the new GST rates will have to proportionately reverse their input credit.
CII's Director General Chandrajit Banerjee said: "Providing choice to realtors to opt for the reduced rates or continue with existing rates with input tax credit for ongoing housing projects shall make compliance easier for them".
He said the real estate industry had taken up the issue of complexities of apportioning and reversal of input tax credit for the ongoing projects.
Anarock Chairman Anuj Puri termed this decision as an intelligent move by the incumbent government. "With this decision, it has carefully side-stepped conflict with both builders and buyers".
Knight Frank India CMD Shishir Baijal said the announcement of giving developers a choice of tax regime for ongoing projects has brought some reprieve to developers' concern on the loss of ITC in the new regime.
"The choice of selecting the GST regime would depend on the respective project dynamics. The ones with healthy sales traction are likely to continue with the earlier regime to maintain their profitability," he said.
However, for projects with slower sales velocity, the developers may change course as the stimulation of demand will far outweigh the adverse impact of ITC withdrawal on developer margins, Baijal said.
"Providing such option would be beneficial for those developers who had already factored the entire input credits of the project while arriving at the sale price and in many cases these benefits may already have been passed on to customers," said Pratik Jain, Partner & Leader, Indirect Tax, PwC India.
Supertech Chairman R K Arora said the GST council's decision would bring much clarity and lead to smooth transition.
Madhusudhan G, CMD, Sumadhura Group, said: "The latest GST announcement certainly favours the developer community by making it flexible. Also, this new tax structure for real estate solves the transition issues on ITC for the ongoing projects and is a big relief for developers".
Amit B Wadhwani, CO-founder, Sai Estate Consultants Chembur, said all the reforms that have been made in the past couple of years are aimed towards a singular goal of making Indian real estate more organised and benefit homebuyers.
Mandating 80 per cent of material procurement from registered dealers is an important step towards ensuring increased professionalism in the industry, Wadhwani added.
"Coming on the heels of landmark decisions in the interim budget and the last GST council meeting, which brought down the effective GST rates on under constructed units, this small but significant decision will strengthen the ongoing policy formulation in the sector," said Neh Srivastava, Under Secretary, Ministry of Home Affairs & President, Central Secretariat Service Officers Society (CSSOS).
NAREDCO's VP Ashok Mohnani, who is also Chairman of EKTA World, said the GST council decision would boost sales.