New tax regime for buyers with completion certificate; flexibility to opt for lower GST sans ITC

By- Mr Neh Srivastava

Under Secretary, Ministry of Home Affairs and President, CSSOS

With elections done and dusted, the Central Board of Indirect Taxes and Customs (CBIC) is moving ahead with its plan to implement its 12 per cent GST order on balance amount due to the builders. As per the order, Home buyers who have been granted completion certificate by March 31, 2019 will have to shell out 12 per cent GST on their purchases.In a second FAQ released in April, the Central Board of Indirect Taxes and Customs (CBIC) had said that builders will not be able to adjust the accumulated credits in ongoing projects in case they opt for lower new GST rate of 5 per cent for normal and 1 per cent for affordable housing.

In March, the GST Council, headed by then Finance Minister Arun Jaitley and his state counterparts, had allowed real estate players to shift to 5 per cent GST rate for residential units and 1 per cent for affordable housing without the benefit of input tax credit (ITC) from April 1, 2019.

For the ongoing projects, builders were given the option to either continue in 12 per cent GST slab with ITC (8 per cent for affordable housing), or opt for 5 per cent GST rate (1 per cent for affordable housing) without ITC. Though the deadline to communicate the tax structure to the respective jurisdictional officers was to be made by May 20, the implementation had been slowed down due to ongoing elections.

It’s a downer. We were expecting the rates to remain at 5% slab. The changed rates will not just slow down the implementation of Housing for all initiative but will also accelerate the already spiraling bad loans in the debt-riddled sector.”

We are still hopeful that the government will come with some measures of relaxation, especially for the customers who have already paid some part of their payment. The government must also either rollback the retrospective implementation of new tax slabs or provides a sunset period of at least a year so that finances of the home buyers are not impacted drastically.

In addition to the changed rates, the council had also decided that exempted goods procured by a builder under the new tax regime would not be counted within the 80 per cent limit set for procurement from registered dealers, which effectively curtailed the developers ability to avail the credit entailed on an additional tax of 18 per cent on value of exempt supplies.

With the onus of opting for new GST rates shifted to developer instead of the land owner, the move is expected to not just put undue pressure on developers but also on home buyers who will ultimately foot the bill under the new system. It’s highly unlikely that developers will stick to the old rates and this surge in additional taxes will eventually find its way to the buyer’s pocket.

“If immediate relief measures are not put in place, it will undo much of the success that we have achieved of late in housing sector, starting from RERA, Delhi LPP, infrastructure status and so on. Developers in the sector are already under severe resource crunch, as are home buyers. Such high taxation will not help anybody.