GST council’s move on residential realty gives relief to developers

GST council’s move on residential realty gives relief to developers
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New Delhi, Mar 20: GST council’s decision to give option to choose tax regime to charge GST for ongoing projects has brought some reprieve to developers’ concern on the loss of Input Tax Credit (ITC) in the new regime, market players and experts said.
“By making the new tax rates optional for residential projects under construction, the 34th GST Council has effectively addressed apprehensions as well as potential disputes on various computational and transitional issues, such as loss of input credits, pricing and others that were bound to arise on account of the change,” Mekhla Anand, Partner, Cyril Amarchand Mangaldas said.
Providing such an option to the developers would be beneficial to those who had already factored in the entire input credits of the project, while arriving at the sale price and in many cases these benefits may already have been passed on to customers, said Pratik Jain, Partner & Leader, Indirect Tax, PwC India.
Under the earlier regime, GST at the rate of 12% had to be charged at the discounted sale price arrived at after factoring the entire ITC that was available to the developer. If the regime is changed midway, the developers are forced to charge GST at the rate of 5% on the reduced price. But, the developers cannot avail the ITC as ITC has been discontinued.
For example, if a developer wants to sell a flat for Rs 1 crore on construction linked payment and he is supposed to get Rs 6 lakh as ITC from the government, he can sell the flat for Rs 94 lakh. In this system, he will charge 12% GST on every payment made by the customer for his purchase price of Rs 94 lakh. Therefore a customer will have to pay Rs 1,05,28,000 including GST.
As the developer has committed to sell the flat at Rs 94 lakh, and tax regime changed, the developer will not able to recover his Rs 6 lakh unless he revises the price with the customer.
But there are situations where revised prices including GST under the new system would be beneficial to the prices under the old tax regime for customers, particularly where the pre GST prices of house are upward of around Rs 10,000 per sq ft.
Therefore, Jain said, “Industry will have to work out, which option works best and come up with the revised price structure quickly. It is important to undertake changes in IT systems, documentation and processes at earliest considering the April 1, 2019 cut off date.’’ Jain said that timely engagement with the customers would also be important, as they would expect overall reduction in prices.
CREDAI national president Jaxay Shah said, “The real estate industry is particularly happy that the government has taken all precautions to ensure a smooth and easy transition to the new regime of rates, and allowed the option to follow the existing rates for ongoing projects.’’