GST Council Considers Scaling down of GST Rates on Residential Properties in the 34th GST Council Meeting

The 34th GST Council Meeting was held on 20th March, 2019 in New Delhi via video conferencing. The members discussed the operational details for implementation of the recommendations made by the council in its 33rd meeting where it was proposed that the effective GST rate be brought down to 1% in the case of affordable housing and 5% on the construction of houses that do not fall under the criteria of affordable housing.

The GST Council has approved the transition plan for the implementation of the new tax structure. In a move that proves to be of great relief to the housing sector, the Council has provided the option to ongoing projects to choose between paying 12% GST with Input Tax Credit benefits, or choose to pay 5% GST without the option to avail ITC. “Ongoing projects” refer to any construction projects where construction has started prior to April 1, 2019. The new rates will be applicable from the 1st of April.

For the affordable housing sector, the effective GST rates would be 8% (with ITC) and 1% (without the option of ITC). All houses that come under the bracket of affordable houses as decided by GSTC (up to a maximum value of 45 lakhs and area 60 sq. mtr. in non-metros / 90 sq. mtr. in metro cities) will attract 1% GST. The new GST rate will also be applicable for affordable houses being constructed in ongoing projects under the existing central and state housing schemes that are presently eligible for concessional rate of 8% GST (after 1/3rd land abatement).

The meeting also brought in decisions such as 80% of the material procurements other than capital goods, TDR/ JDA, FSI, long term lease should be from registered dealers. Failing this, the builder will be liable to pay taxes @ 18% on RCM basis. However, cement purchased from unregistered dealers will be taxed at 28% under RCM.

In addition, properties with up to 15% commercial spaces will be treated as residential properties and ITC rules will be amended to bring greater clarity on monthly and final determination of ITC as commercial units in such mixed projects will still be eligible for ITC.