Generally, the Goods and Service Tax (GST) should be charged on goods and services, not on immovable objects like property. However, the Indirect tax laws of India considers the sale of under-construction residential apartments as a supply of goods and services.
In the recent amendments of GST rates, the levied GST tax rates on under-construction apartments have seen a dip from 12% (8% for affordable housing) being accepted earlier to revised 5% (1% for affordable housing) new rates. But in some case, these altered rates need to be accepted as well from the builders and homebuyers.
The new GST rates have been implemented in the country as mandatory from April 1, 2019. These rates are lower than the earlier GST rates however it did not offer the benefit of input tax credit to builder. In some cases, when these reduced GST rates imply on a higher base value it turns out as more taxing to the builder or consumer.
All in all, the new tax architecture is expected to convey hefty benefit in the sale of high-end or luxury projects with a high per square foot cost. If compare between old tax structure and the new one, the more beneficial project could vary between schemes. And the factors which will work in favour comprises land value, construction expenses and pricing which is agreed between the builder and a customer.
With effect from April 1, 2019, the new rates avail builders with an option of presuming old rates (with the Input Tax Credit claim) for an ongoing project. As per the experts, there was need of an option exercised with an intimation on or before May 20, 2019. But not such an option. Possibly, it is done to make sure that a builder did not feel burden with unexpected and unbudgeted GST charges payable to loss of GST input tax credit. The option is needed to be applied project wise so that the builder becomes eligible to use the old rate for some projects and not others.
The rate change has come out as an overall equalization of the tax architecture for the real state department. It’s planned to avail customer with the option of choosing from the old scheme or the new scheme as an absolute privilege to the builder. Generally, the consumer shall not be liable to govern the rate and scheme as per his/her choices and also bear the consequence of the option practised by the builder. So, it is possible that two buyers in the same project and the same buyer in two different projects may pay different GST rates (old or new), depending upon the option practised by the builder.
Due to this, the buyers have to confront additional confusion while purchasing a new home. Comparing prices on the behalf of different GST rates on different projects- 12%/8% or 5%/1%, or no GST if all set to move in the apartment along with validation of the rate being levied by the builder.
On the other hand, Builders would require to deal with this complex exercise of evaluating credits payable to projects, if following the same old scheme and with the new scheme they required to estimate receivable credit reversals, where required.
The builders with a pan-India appearance or multi-entity organization are expected to be affected with the additional GST costs (non-creditable GST) emerging in lieu of “open market” estimation of intra-group or intra-company cross-charges. Thus, GST is expected to play a key role in the designing of special purpose vehicles, going forward.
