The GST Council on Tuesday decided to allow all projects where construction begins from April to move to a lower levy, but postponed a decision on the Maharashtra government’s demand for classify apartments that cost under Rs 70 lakh in Mumbai as “affordable housing”.
The decision follows the council’s move to lower GST rates to 1% for under-construction affordable housing projects and 5% for others but withdraw the benefit of credit for taxes paid on inputs such as steel, cement and paints as builders were seen to be pocketing the gains. Currently, builders pay 8% GST on under-construction affordable housing and 12% on other projects.
Conscious of the possibility of harassment by tax officials, the council headed by finance minister Arun Jaitley decided to give builders of under-construction residential projects the option to choose between the old tax rate and the new rate as part of a transition plan.
Revenue secretary Ajay Bhushan Pandey informed during press conference that builders will get a one-time option to continue paying tax at the old rates for projects that are not completed by March 31 or move to the new rate. He also said the new regime will not push up prices as was being suggested by some developers and any complaints of an unfair hike in prices will be dealt with by the anti-profiteering body.
Maharashtra Government pitched for easing definition of affordable housing for Pune and Mumbai with a CAP of Rs. 60 lacs for Pune and Rs. 70 lacs for Mumbai but due to forthcoming LS elections, decision could not be taken.
While the input tax credit benefit has been withdrawn, the GST Council decided to mandate at least 80% procurement from vendors who are registered to pay the tax. The move is meant to ensure that the government can keep tabs on transactions in a sector where cash dominates transactions. Any shortfall in purchases, according to these norms, will result in a tax of 18%. It also clarified that projects with up to 15% commercial space will be treated as residential property, a move meant to ensure that developers are not penalised for building amenities such as shops, clubs and restaurants that are used by residents.
“ITC rules shall be amended to bring greater clarity on a monthly and final determination of ITC and reversal thereof in real estate projects. The change would clearly provide a procedure for availing of input tax credit in relation to commercial units as such units would continue to be eligible for input tax credit in a mixed project,” an official statement issued after the meeting stated.