The Goods and Services Tax (GST) Council from March 31, 2019, had cut-down the rate on under-construction residential Property in Navi Mumbai to 5% for normal category and 1 % for the affordable housing category from April 1, 2019. Moreover, the Council has also revised the size of what constitutes the term “affordable home”. According to the new definition, homes with carpet areas 60 sq. mt in metro cities and 90 sq. mt in non-metropolitan areas, valued at up to Rs 45 lakh, will now be categorised as affordable housing. Previously, the limit was a uniform carpet area of up to 60 sq metres for a house to be qualified under the affordable housing segment. However most developers did not react positively to this announcement because they were worried about its impact on the input stock they had already bought before as a part of their long-term purchases. This resulted in most Builders in Panvel charging an incremental basic sale price from the buyers. This in turn negated the very basic purpose of reducing the GST to help reduce the cost of property to the buyer as well as augment the sales for the developers.

To address these apprehensions the GST Council has now permitted Builders in Navi Mumbai to exercise a one-time option to choose between the Old GST rates and the New GST one for their under-construction residential Property in Panvel to help them resolving issues pertaining to input tax credit. Real estate experts believe that this will provide flexibility to real estate developers in selecting the most suitable tax option. So developers now get a one-time option to continue paying tax at the old rates (effective rate of 8 percent or 12 percent with Input Tax Credit or ITC) on their on-going projects, that is for buildings where construction and actual booking both started before and which will not be completed by March 31, 2019. A simpler GST structure will protect the interests of property buyers, as it will eliminate the problem of Input Tax Credit benefits not getting passed on to the end users.

However, the option yo choose between the two rates for ongoing real estate Projects in Panvel is not going to be an easy one with concerns as how the over-used credit will be calculated and adjusted in case the new rate is taken by the developer and what the customer reaction will be if the builder chooses to stay with the old rate and there is no reduction in the prices of Flats in Panvel.

This is however a very smart move by the government as now the Builders in Panvel will choose an option which is most suitable and beneficial for him. This will ultimately benefit the home buyers as the developer cannot charge any incremental basic sale price from the buyers due to the flexibility offered to them for ongoing projects and bookings before April 1, 2019. This realistically is a practical move and will enable the realtors to segregate under-construction projects from new projects and would provide relief to builders who were worried about the loss of input tax credit. This would also enable them to price the loss of input tax credits in the new projects.

However to avail tax on the lower GST rate a pre-condition was imposed that 80 per cent procurement by developers should be from GST Registered Vendors.
The multiplicity of rates in the previous regime had created a lot of confusion.Inflationary pressures and certain short-term adverse impact resulting in difficulties in the compliance for the first few months. The global precedence says that GST has been beneficial and leads to better economic transactions.

The new tax rates of 1 per cent (on the construction of affordable houses) and 5 per cent (on other than affordable houses) shall be available only subject to the condition that the input tax credit shall not be available and that 80 per cent of inputs and input services shall be purchased from GST registered vendors only.

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