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27 February 2019

Decisions in the 33rd GST Council meeting - GST on residential properties rationalized

The 33rd GST Council meeting focussed on various demands of the real-estate sector. The GST Council announced the following key decisions:

Rationalization of GST rates
The GST rate on under-construction properties has been reduced as follows:

Particulars Description of property Old Rate
(Effective)
Revised rate
(with effect from 1 April 2019)
Max. carpet area Max. price 
Residential properties in the affordable housing segment 90 sq. meters
in non-metro cities
INR 4.5 million 12%
(with Input Tax Credit [ITC])
1%
(without ITC)
60 sq. meters
​in metro cities
INR 4.5 million 8%
(with ITC)
1%
(without ITC)
Residential properties outside the affordable housing segment Does not meet any or both of the above-mentioned criteria 12%
(with ITC)
5%
(without ITC)

*The effective GST rate of 8% was applicable on under-construction residential houses having an area of up to 60 sq. meters. This was irrespective of the price of such residential houses, provided that the housing project was approved by a competent authority under ‘Scheme of Affordable Housing in Partnership’.  

The GST Council has provided the following rationale behind the reduction in GST rates:
  • The buyer of the house gets a fair price and affordable housing gets very attractive with GST @ 1%.
  • The interest of the buyer is protected; ITC benefits not being passed to them shall become a non-issue.
  • Cash flow problem for the sector is addressed by the exemption of GST on development rights, long-term lease (premium), Floor-Space Index (FSI), etc.
  • Unutilized ITC, which used to become cost at the end of the project, gets removed and should lead to better pricing.
  • Tax structure and tax compliance become simpler for the builders.
GST exemption on TDR​
The GST Council has announced that intermediate GST on Transferrable Development Rights (TDR), Joint-Development Rights (JDA), lease premium and Floor Space Index (FSI) shall be exempted for such residential property on which GST is payable. This decision will be implemented once the details of the scheme are worked out by an officers’ committee and approved by the GST Council.​
 
SKP's Comments
The reduced GST rates are subject to the denial of ITC benefit, and therefore it would be interesting to see whether there is a significant reduction in the prices given the fact that the ITC will become a cost for the builders.​ 

Furthermore, denial of ITC benefit can mean the builders start procuring their inputs from unregistered dealers, similar to the pre-GST era. This can result in resumption of the cash economy in a sector which is already plagued with black money. In view of this, the government is considering implementing a high minimum threshold (of up to 80%) of inward supplies to be compulsorily procured by builders from registered suppliers.
 
SKP
Urmi Axis | 7th Floor | Famous Studio Lane | Mahalaxmi | Mumbai | 400 011 | India
+91 22 6730 9000 | 
skp.gst@skpgroup.com | www.skpgroup.com

 
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