GST Council to form realty rules on March 19

The Goods and Services Tax (GST) Council will finalise the rules and regulations for the ongoing under-construction residential projects in its next meeting scheduled on March 19. The meeting will be held through video-conferencing.

The meeting to be chaired by finance minister Arun Jaitley will finalise the rules and regulations for implementing its decision on lowering of GST for the real estate sector. In the last meeting on February 24, the Council had decided to lower the GST on the under-construction houses from 12% to 5% and for affordable housing from 8% to 1% without input tax credit (ITC) benefit. However, on the important issue of transition of the existing under-construction projects, the Council had asked its fitment and the law committee to draft the rules and guidelines for transition.

With the framing of rules, the developers as well as consumers will get a clarity on how much will be the impact of the rate cut on the ongoing residential projects.

"The developers would like to know how much they have to pass on to the customers in case of ongoing projects. Once they know the quantum of loss being incurred, they can build it in the final price," said Prashanth Agarwal, partner at PwC. The new rules will decide how the new GST rate of 5% for under-construction premium and 1% for affordable housing will be calculated for the ongoing projects.

The new rates are set to become applicable from April 1.

So far, the ITC credit was available to the builders in the case of the under-construction flats. Since the ITC was not being passed on to consumers, the Council decided to withdraw the benefit in its last meeting. The Council, however, slashed the GST rates on affordable and premium housing in the under-construction category which saw subdued buying due to higher taxes. It was being seen that the prospective homebuyers preferred to wait for the projects to get completed as there is not GST on ready-to-move apartments having completion certificate.

Apart from the transition of the rate framework from the existing one to the new scheme, the Council also has to decide on the issues such as the transfer of development rights, joint development rights, lease premiums and the sale or transfer of Floor Space Index (FSI).

Some member states had raised the issue of allowing the commercial portion of a residential project to be taxed at the same rate as the rest of the project. The Council will decide on whether it should be allowed and to what extent on the basis of the recommendations of the fitment committee and the law committee of the GST Council.

With the finalisation of rules and regulations, the impact on the ongoing projects for the developers and the consumers will be decided.

In the last meeting, the Council had also decided to change the definition of affordable housing. Any house or flat of carpet area of up to 60 square metre in metro cities will be categorised as affordable housing. For non-metro cities and towns, the area would be 90 square metre or less. The houses priced up to Rs 45 lakh or less will come under the affordable housing category. Mumbai, Delhi NCR, Kolkata, Bengaluru, Chennai and Hyderabad will fall under the metropolitan cities.

The Council is, however, unlikely to decide on the issue of uniform tax on lotteries as no policy decision can be taken during the model code of conduct. The model code of conduct has come into effect with the announcement of election dates for 2019 Lok Sabha polls. The other decisions regarding the real estate are, however, in continuation of the earlier announcements.

BUILDING FORTUNES

• 5% – GST on under-construction houses has been reduced to, from 12% earlier
   
• 60 square metre – House in metro cities now categorised as affordable housing