New Delhi: In a move to aid the real estate sector, the all-powerful GST Council Tuesday approved a transition plan for the implementation of new tax structure for housing projects.
As per the decision taken by the GST Council, the developers of residential projects which are incomplete as on March 31, will have option either to choose the old structure with Input Tax Credit (ITC) or to shift to new 5 per cent and 1 per cent rates without ITC.
In the previous meeting on February 24, the Council slashed tax rates for under-construction flats to 5 per cent from 12 per cent and affordable homes to 1 per cent from 8 per cent, effective April 1.
"GST Council today has approved transition plan for the new rate structure for real estate residential projects...From April 1, builders have to choose either of the options for which they will get time," Revenue Secretary A B Pandey told reporters after the 34th meeting of the GST Council here.
Finance Minister Arun Jaitley chaired the meeting with state finance ministers via video conferencing.
On the time-frame for transition, Pandey pointed out that the council has agreed on providing a reasonable time to developers.
The matter would be decided in a next few days in consultation with the states, he said, adding that it could be 15 days or one month.
Pandey further said that the decision will help the builders in clearing inventories.
"This go-ahead by the GST Council brings quite a relief for this sector in handling transition issues in specific," EY India Partner Abhishek Jain said.
For upcoming projects, reduced rates of 5 per cent and 1 per cent will be applicable beginning April 1.
On the next GST Council meeting, the Revenue Secretary said that is unlikely till the election process is over.
He, however, said that if any emergent situation arises then a meeting could be called with the permission of the Election Commission.
On apprehensions being raised on possible price rise due to new tax structure, the secretary said if prices escalate, the National Anti-profiteering Authority will look into it and take an appropriate action.
Deloitte India Partner M S Mani said the pragmatic move to segregate under construction projects from new projects 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. Reversal of Input tax credit on a proportionate basis would entail significant computational issues for builders as each project would be in various stages of construction and have differing pre and post completion sale patterns," Mani said.