GST council gives the go ahead for new tax rates for real estate sector

GST council gives the go ahead for new tax rates for real estate sector
20/03/2019 , by , in News/Views

The all-powerful GST Council Tuesday approved a transition plan for the implementation of new tax structure for housing units, Revenue Secretary A B Pandey said.

Reasonable time for transition will be given to developers in consultation with states, he told reporters here.

The meeting deliberated on the transition provision and related issues for the implementation of lower GST rates for the real estate sector.

The Council had in its last meeting on February 24, slashed tax rates for under-construction flats in affordable category to 1 per cent. GST rate on other categories was reduced to 5 per cent, effective April 1. Pandey said GST rates for new projects will be mandatory from April 1.

Real estates reaction-

In reaction to the GST, the council meets announcement on the transitional plan, Dr. Niranjan Hiranandani, National President, NAREDCO says that “The GST council addresses the transition issues on Input Tax credit for the ongoing projects with making it flexible for the developers to choose between the old GST v/s New GST schemes. This will allow the developers to opt between two GST schemes available i.e old GST rate with ITC or apply a reduced rate of GST without ITC for the under-construction projects in order to avoid operational hassles. Real Estate Developers who choose the new GST rates will have to proportionately reverse their input credit.

Anuj Puri, Chairman, “The developers choosing to go with the second option of new GST rates may not be able to hike property prices in the immediate future. The possibility of prices being hiked was a matter of concern for aspiring buyers, but the fact is that developers can ill afford to test the currently fragile market sentiment by raising rates immediately.”

Rajan Bandelkar, President, NAREDCO MAHARASHTRA, “The developers who we were not able to sell because of high GST of 12% will now be able to sell those inventory with a lesser tax of 5% GST. It is a very positive move and will surely benefit the real estate and housing sector.”

“It will not be a viable proposition to operate on erstwhile GST rates it won’t be absorbed by consumers. Moreover there will be a marginal price increase for the under construction and upcoming launches to offset the loss of tax benefits in the new financial year. Albeit there is over all positive outlook and sales is expected to see a rise.” Ashok Mohanani, Chairman, EKTA World, Vice President, NAREDCO MAHARASHTRA.

Manju Yagnik, Vice Chairperson, Nahar Group and Vice President NAREDCO (Maharashtra), “It is only fair that the Government has ensured flexibility of timelines while devising the new rates. It will give the developers a clear picture so that they may focus on aligning their finances by making use of ITC or working along the new guidelines without ITC.”


Amit B Wadhwani, CO-founder, Sai Estate Consultants Chembur Pvt Ltd, “All the reforms that have been made in the past couple of years are aiming towards a singular goal of making Indian real estate more organized and benefit homebuyers. Mandating 80% of material procurement from registered dealers is an important step towards ensuring increased professionalism in the industry”

“This new tax structure for real estate solves the transition issues on ITC for the ongoing projects and is a big relief for developers.” Shared Madhusudhan G, Chairman and MD, Sumadhura Group.

Rohit Poddar, Joint Secretary, NAREDCO West and Managing Director, Poddar Housing and Development Ltd, “The decisions taken by the authorities have given relief to the developers as the option to go with the older GST structure is still available. While the new GST rates for ongoing under-construction properties may hit the margins for developers, the power to choose between old and new rates will be favourable for all.”

Mekhla Anand, Partner, Cyril Amarchand Mangaldas, “By making the new tax rates optional for residential projects under construction, the 34th GST Council has effectively addressed apprehensions as well as potential disputes on various computational and transitional issues such as the loss of input credits, pricing etc. that were bound to arise on account of the change.”

Pratik Jain, Partner & Leader, Indirect Tax, PwC India, “Another important aspect clarified by the Council is to treat projects with up-to 15% commercial space as residential property. This is important in cases where buildings have commercial amenities such as clubs, restaurants etc as well as in case of residential-cum-commercial projects. However, in certain cases it may not be possible to determine the exact percentage of commercial area upfront or the ratio of residential and commercial area might undergo a change after the project has started.  Tax treatment in such cases may need to be analyzed in detail.”

Parth Mehta, Managing Director, Paradigm Realty, “Since the developers are already facing various headwinds resulting in shrinking margins and poor cash flow the decision to avail ITC in ongoing under construction on proportionate basis will certainly serve as some breather for developer.  Lowering GST on houses was a good move but abolishing ITC without lowering GST on input cost was detrimental for developers as it would hit their margins drastically as well as affect cash flows. Since the council has made it mandatory only for new projects to carry revised GST rates of 5% without ITC and 1% for affordable , this will result in developers pricing the new launches at higher rate to protect the margins which will shrink if rates are maintained  because of abolishment of ITC and higher GST for input materials.”

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