On March 19, 2019, the GST Council approved a transition plan for implementing new tax structures for housing units. According to AB Pandey, the revenue secretary, the builders will now have the option to choose between the new tax rates, along with the old ones for the residential projects that are under construction in order to resolve the issues with the ITC (input tax credit).

According to the decisions taken by the GST Council, the developers of the residential projects that are complete as on March 31, 2019 will get the option to either stay with the old tax structure or move to the new ones at five percent or one percent rates without the input tax credit. Builders will receive the option of paying taxes at the earlier rates, which have eight percent or twelve percent taxes with ITC on the ongoing projects.

By ongoing projects, it refers to the buildings where the GST is applied on under construction flats and bookings both started before 1st April 2019 but will not be completed before 31st March 2019. The new tax rates of one percent for the affordable houses and five percent for others without input tax credit will be applied to the new projects.

The time frame for the Transition and other details

Pandey mentioned that, in terms of the time frame for the transition, the council has reached the decision on offering a proper time frame to the builders. The exact time and other crucial details will get decided after consulting with the states, and the time given to the builders can be anywhere around fifteen days to a month. The Council also stated that the projects that have nearly fifteen percent commercial areas will be counted as residential property. It will help in resolving the issues where buildings come with commercial amenities, like restaurants and clubs, along with the commercial-cum-residential projects.

Moreover, another condition has been imposed that eighty percent procurement by the developers should come from the registered dealers for availing the composition scheme. The new tax rates of one percent and five percent will available on two conditions:

• The input tax credits will not available
• Eighty percent of inputs and input services will be bought from the registered person.

Any shortfall in adhering to these norms will lead to a tax of eighteen percent. Even purchasing cement from the unregistered dealers would attract a twenty eight percent duty.

The last conference of the council took place on 24th February, 2019, and in that meeting the tax rates were slashed for the under construction apartments in the affordable section to one percent. The GST rate for real estate on other categories was brought down to five percent, which would be effective from 1st April, 2019. Pandey further stated that the new projects will have to pay the new taxes from 1st April, 2019 mandatorily.

The effects of the changes in the GST rates on builders and buyers

According to builders, though these changes in the GST rates are nothing ground breaking, it is still an intelligent move by the Government. With this decision, the government has managed to avoid conflict with both the buyers and the builders. The initial reaction of the builders to the announcement of tax rates minus the input tax credit was worry and trepidation. This is understandable given the fact that they are worried what would happen to the input stocks that they have collected way before on the account of the long term purchases. The move will be beneficial for them.

But, the developers who opt for the second option of the new GST rates might not be able to raise the property prices in near future. The possibility of the prices being raised is something of a worry for the aspiring buyers, but the truth is that the developers cannot afford to test the present fragile market sentiment by increasing the rates immediately. In addition to that, when it comes to GST impact on home buyers, the announcement will not really impact them over much because they will continue expecting lower GST rates.

Finance MinisterArunJaitley said, after the 33rd meeting of the GST Council, that in order to make sure that the real estate sector does not go back to being cash-driven due to the removal of input tax credit, the builders will need to buy a high percentage, as decided by the committee, of the inputs from GST registered dealers. The reduction of the GST on property rates will also be helpful to the Housing for Allmissionsand fulfill aspirations of the middle class.

These are only the expected effects and outcomes of the new tax rates. The actual effects of it can only be judged as more time passes.