New Delhi, Feb 8 (IANS) A ministerial panel set up to look into GST-related issues of the real estate sector on Friday indicated that it would recommend taxing under-construction residential properties at 5 per cent, down from 12 per cent currently.
Currently, GST is levied at 12 per cent with input tax credit (ITC) on payments made for under construction property or ready to move in flats where the completion certificate has not been issued at the time of sale.
A Group of Ministers (GoM) formed to analyse tax rates and issues being faced by the real estate sector under the goods and services tax (GST) regime has favoured reducing GST rate on under-construction residential properties to 5 per cent without input tax credit from current effective rate of 12 per cent, after abatement of value of land. The panel is also leaning in favour of a lower rate for affordable housing at 3 per cent from 8 per cent at present, a government official said.
The seven-member GoM, headed by Gujarat Deputy Chief Minister Nitin Patel, will finalise its recommendations in 1-2 days and then submit its recommendations to the GST Council, which will take the final decision on the proposal. “The industry players have asked for a higher rate with input tax credit but the ministers felt that the benefits of input tax credit don’t get passed on to homebuyers. That’s why like in the case of restaurants, the GoM has favoured lowering the GST rates on residential houses to 5 per cent without input tax credit and to 3 per cent for affordable housing,” the official said.
Currently, GST is levied at 12 per cent with input tax credit (ITC) on payments made for under construction property or ready to move in flats where the completion certificate has not been issued at the time of sale.
The effective pre-GST tax incidence on such housing property was 15-18 per cent. GST, however, is not levied on buyers of real estate properties for which completion certificate has been issued at the time of sale. There have been complaints that builders are not passing on the ITC benefit to consumers by way of reduction in price of the property after the rollout of the GST.
We want to ensure lower tax rates for housing for the middle class and homebuyers, Gujarat’s Deputy Chief Minister Nitin Patel told reporters after the meeting. Tax experts, however, said this may lead to breaking of inputs tax credit chain as some inputs such as cement are taxed at a much higher rate of 28 per cent.
Pratik Jain, Leader, Indirect Tax, PwC India said, “While the intention of the government is to provide relief to the end customer, from a structural standpoint, it should be ensured that the chain of GST credit is not broken. Perhaps a better approach would be to reduce prevailing GST rate on residential property, say bringing the effective tax rate down to 8 per cent from 12 per cent, while continuing the benefit of input tax credit.”
“For real estate properties where the cumulative impact of tax cost on account of denial in credits and 5 per cent output GST rate is lesser than the current 12 per cent rate, this rate cut would be quite positive. But where the cumulative cost is higher than 12 per cent, this rate reduction could entail an increased tax cost.”
The GST Council, headed by the Union Finance Minister and comprising his State counterparts, on January 10 decided to set up the GoM. The other Ministers in the seven-member GoM are the Finance Ministers of Maharashtra Sudhir Mungantiwar, Karnataka’s Krishna Byre Gowda, Kerala’s Thomas Isaac, Punjab’s Manpreet Singh Badal, Uttar Pradesh’s Rajesh Agarwal and Goa Panchayat Minister Mauvin Godinho.
The Group of Ministers headed by Gujarat Deputy Chief Minister Nitin Patel also favoured 3 per cent tax on the affordable housing category, down from 8 per cent. However, claiming input tax credit would no longer be possible on such transactions, an official said after the meeting of the GoM.
The panel set up by the Goods and Services Tax (GST) Council is expected to finalise its report in a week’s time and table it in the next meeting of the Council for final approval.
GST is currently levied at 12 per cent on premium housing and 8 per cent on affordable housing on payments made for under-construction properties where completion certificate has not been issued at the time of sale. No GST is charged if a property is bought after the issue of completion certificate.
The government had last month constituted a seven-member GoM to look into GST-related issues of the real estate sector. Its agenda was to analyse the tax rate of GST on the under-construction residential properties for boosting the realty segment.
There had been demand from many quarters to slash the rate on the segment to 5 per cent from the current 12 per cent.
Other members of the GoM are finance ministers of five states — Sudhir Mungantiwar of Maharashtra, Krishna Byre Gowda of Kerala, T.M. Thomas Isaac of Karnataka, Manpreet Singh Badal of Punjab and Rajesh Agarwal of Uttar Pradesh. Goa’s Panchayat Minister Mauvin Godinho is also a member. — IANS
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