The Goods and Service Tax (GST) council has taken decisions to reduce the GST rate on the under construction properties in the meeting held on February 24, 2019. This is on effect from April 1, 2019. As to the present rules, GST is posed only when people book their property during the construction stage. After the building gets the completion certificate, Any organisation including the Government has no powers to levy GST. Under construction, properties are classified as affordable housing and regular housing, for levy GST. From April 1, 2019, the GST charges have been reduced from already present 12% to 5% for under construction property, and from 8% to 1% for affordable housing.
The developers can claim the charges for the previously bought goods like marbles, cement, etc., which is called as input tax credit' The developers have to give the benefit of input tax credit to the buyers in the form of reduced base prices. Since there is no mechanism to verify the above chain of process, GST council has decided that while availing the lowered GST rates, developers cannot be able to avail input tax credits, with respect to the GST paid on inputs. To ensure that the government doesn't lose its GST revenue, while making relevant rules, the government proposed that developers would be forced to source the raw materials from the GST registered suppliers and pay GST as their inputs. It makes sure that the government can collect the required tax, concerning the inputs used by the developer, but not concede any part to the developer. The government won't lose revenue but would extract more revenue from the real estate sector due to the limits on the input tax credits.
Buyers don't have benefits on the longer run, as the rate cuts in GST comes with a bar on setting off the input tax credits, on the inputs used by the developer while constructing the houses. The tax has been reduced for the under-construction properties but the taxes for buying cement, marbles have risen to 28% which is a real threat posed on the developers. Though the tax reduction reduces the house cost, the property rates are to be raised to nullify the offset caused for the developers to buy the goods under the input credits. Even if the property rates drop down, people have to choose for under construction property which might burn their pocket. There is no use for the buyers as there will be no reduction in the price of any properly for the decrease in the GST.
People who have booked the houses and are paying the money using part payment options tend to have certain benefits, as the cost of the apartment is already fixed. The change of GST applies only to the payments that are yet to be made. GST is paid on receipt of payment, rising of invoice and completion of service or supply of goods. If the developer is prepared to issue the invoice on or after April 1, 2019, the user can avail reduced taxes. If the completion certificate is issued before the changed date, one cannot avail reduced rate benefits. In a few cases, Where the date for paying due installments fall after March 31st, 2019 and the builder is righteous, one can avail to get benefits out of the changed prices.