Homebuyers may have to pay 12% GST on property

By : 360 Realtors

02 August, 2019

With the elections over, the CBIC (Central Board of Indirect Taxes and Customs) is proceeding with its plan to impose a GST of 12% on homes. This is an attempt to balance the amount, due to the real estate developers. According to the orders, property owners who have received the completion certificate by 31st March, 2019, need to pay a GST of 12% on their purchases. In April, a second FAQ was released. In this FAQ, the CBIC stated that the developers were not able to make an adjustment in the credits that were accumulated in the current projects, if they chose a lower rate of GST, fixed at 5% for the normal ones and 1% for affordable homes.

The GST Council, last March, led by the Finance Minister, had enabled the real estate developers to pay 5% GST for residential apartments and 1% for affordable homes. This was applicable from 1st April, 2019, without the input tax credit benefit.

For the ongoing real estate projects, the builders had two options. They could continue with the GST slab of 12% with ITC, and 8% for affordable homes, or switch to the 5% GST slab, and 1% for affordable homes, without ITC. The deadline for communicating the structure of tax to the authorities was supposed to be 20th May. Due to the elections, the implementation process was slowed down.

Apart from the changed tax rates, it was also decided by the council that the goods that were procured by the developers under the new regime of tax would not be accounted for within the 80% limit that was set for registration from authorized dealers. This would effectively curtail the ability of the developers to enjoy the credit to since it would been entail an additional 18% tax on the values of supplies that were exempted.

With the burden of new rates of GST being shifted to the real estate developer and not the landowner, the decision is likely to exert an additional pressure on the builders. At the same time, it is likely that the pressure will pass on to the property owners. Under the new regime, they will have to pay the ultimate bill. The developers are not unlikely to follow the old rates. Therefore, this increment in additional taxes will come from the pocket of the builder.

An official stated that unless immediate measures for relies are in place, the situation will do away with a lot of success that RERA has achieved in the housing sector in the last few months. The builders are facing a resource crunch and the property buyers are under pressure. Therefore, the high taxes are definitely a concern for the industry.