Everything You Need to Know About GST on Under-Construction Houses
Jun 05, 2019 Legal Guidance
Since GST has been introduced, there has been a lot of confusion among the people regarding the application of GST on houses. To address the queries, the Finance Ministry has recently published a compilation of frequently asked questions.
In March, the GST council permitted the developers to exercise one time option for the input tax credit by choosing between old GST and new GST provision for the under residential construction property. This step was taken to provide more flexibility to the developers to select the best possible tax option, depending upon the tax they have already paid for the raw materials like cement, sand, etc.
Builders now have the option to choose the between the tax old tax rate that is 8 percent or 12 percent with ITC on the ongoing projects, given the project has started construction and actual booking before 1st April 2019 but has not completed the construction by 31st March 2019. The developers have the option to choose the tax rate that suits them the best. For the affordable housing segment, the tax rate is 1% and 5% for the rest of the segment.
After the council received many complaints that the developers were not passing the benefit of ITC to the customers, the council decided to take the measure. It is important to note that in the new GST option, the developer will not be able to claim any ITC.
There has been confusion for the residential properties that have provisions of commercial spaces like offices and shops. The council also clarified that the residential buildings with up to 15 percent commercial spaces would be given the same treatment as the residential property. This decision has been taken to resolve the cases where the residential complexes have commercial facilities like restaurants and shops. The decision has been made, keeping in mind that most of the business establishments in the residential properties are only to serve the residents.
To avail the lower GST rates, the condition that 80 percent of the raw materials must be sourced from the registered vendors has been imposed. Hence, to avail the GST rate of 1 percent for the affordable segment and 5% for the rest, the builder must source his raw materials from registered vendors and must not claim for ITC.
Encouraging the builders to buy raw materials from the registered vendors is a crucial way to formalise one of the most unorganised parts of the real estate sector. With the vendors forced to register, the instances and involvement of black money in the market will decrease.
GST council also clarified that the transfer of development rights, FSI and long term lease would not be pay tax, given 1 percent and 5 percent GST has been paid as per the rules or the houses that have been constructed within the residential complex.
In March, the GST council permitted the developers to exercise one time option for the input tax credit by choosing between old GST and new GST provision for the under residential construction property. This step was taken to provide more flexibility to the developers to select the best possible tax option, depending upon the tax they have already paid for the raw materials like cement, sand, etc.
Builders now have the option to choose the between the tax old tax rate that is 8 percent or 12 percent with ITC on the ongoing projects, given the project has started construction and actual booking before 1st April 2019 but has not completed the construction by 31st March 2019. The developers have the option to choose the tax rate that suits them the best. For the affordable housing segment, the tax rate is 1% and 5% for the rest of the segment.
After the council received many complaints that the developers were not passing the benefit of ITC to the customers, the council decided to take the measure. It is important to note that in the new GST option, the developer will not be able to claim any ITC.
There has been confusion for the residential properties that have provisions of commercial spaces like offices and shops. The council also clarified that the residential buildings with up to 15 percent commercial spaces would be given the same treatment as the residential property. This decision has been taken to resolve the cases where the residential complexes have commercial facilities like restaurants and shops. The decision has been made, keeping in mind that most of the business establishments in the residential properties are only to serve the residents.
To avail the lower GST rates, the condition that 80 percent of the raw materials must be sourced from the registered vendors has been imposed. Hence, to avail the GST rate of 1 percent for the affordable segment and 5% for the rest, the builder must source his raw materials from registered vendors and must not claim for ITC.
Encouraging the builders to buy raw materials from the registered vendors is a crucial way to formalise one of the most unorganised parts of the real estate sector. With the vendors forced to register, the instances and involvement of black money in the market will decrease.
GST council also clarified that the transfer of development rights, FSI and long term lease would not be pay tax, given 1 percent and 5 percent GST has been paid as per the rules or the houses that have been constructed within the residential complex.
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