The New GST’s Take on Realty

The New GST’s Take on Realty
27/05/2019 , by , in EXPERT ZONE

Authored by H. P. Rama Reddy, Chairman, Reliaable Developers

According to the new Goods & Services Tax slab, real estate companies have been given two alternatives, to continue with old GST rates or adopt new GST rates without the benefit of input tax credits (ITC), rendering all raw materials and resources purchased unviable. The date to communicate the decision to respective jurisdictional officers has been recently extended by the Government in good faith, to allow realty firms more time to come to a definite and beneficial conclusion.

The New GST – Lowered rates and affordable housing propellant

The GST Council’s decision to approve transition rules on new tax rates for residential properties has turned out advantageous for real estate stakeholders. Under this, builders have the option to continue with 12% Goods & Services Tax slab with ITC and 8% in the case of affordable housing projects or opt for the new, slashed rates. The lowered rates will be 5% on non-affordable housing with no ITC (Input tax credit) and 1% on affordable housing. Several developers purchased inputs and raw materials, which would be rendered unviable without ITC, compelling them to increase prices to minimize losses. This change in GST allows developers to switch to the new tax rates without ITC or continue with old rates for under-construction properties, providing a positive impetus to the Indian realty. This will further help in eliminating process errors, operational difficulties and mitigate losses while bringing financial relief to the overall industry.

Although most real estate firms are still in facing a challenge choosing the right option, the new GST rates nevertheless look appealing to the current market scenario, promising to bring fruitful changes in the industry. A smart move by the government, however, developers who opt for the second route with new GST rates might face the issue of being unable to hike property price in the immediate future. As for buyers, they will continue to reap the perks of lower GST rates without being affected by the on-going alterations.

A recent announcement by the GST Council has initiated extension of the deadline by 10 days, i.e., till May 20th, 2019 to continue with old GST rates with ITC for on-going projects or avail the new lower rates. Builders, in the process of calculating cost-benefit in relation to the current tax changes, were facing a hurdle in finalizing. Now, they are relieved with the new postponement which allows them sufficient time to analyze and choose the best way forward.

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