How new options in GST impact the Construction and Real Estate Sector?

How new options in GST impact the Construction and Real Estate Sector?

The approval of the optional scheme for under-construction projects was really a long-awaited request of the real estate industry. The nod by the government has helped the construction industry, particularly in industry handling transition concerns.

The GST Council has given developers the option of choosing between a 12% rate with the option of input tax credit or 5% externally. When it comes to affordable housing projects, the option is between an 8% rate with input tax credit and a 1% rate without it.

According to analysts, the approval of the optional scheme for under-construction projects by the GST Council gives some relief for the real estate sector, especially in handling transition issues.

Builders can instantly pick between two tax rate structures in case of under-construction residential projects, the Goods and Services Tax (GST) Council announced on July 2nd, 2019. The new reduced tax rates are effective from April 1, 2019.

For under-construction buildings, the choice of tax rates as on April 1 has to be executed within a stipulated time, which is assumed to be announced shortly. For new projects starting on or after April 1, the lower tax rates will apply automatically.

The Council’s decisions also provide higher clarity on taxation of under-construction houses, mainly those sold during the change to the new tax system.

While the Council’s decision is being regarded as a positive, analysts state that the decision to end input tax credits (ITCs) could negatively affect developers. This could have a cascading impact on homebuyers.

The GST council’s decision to diminish the GST rate would be accompanied by the state government’s decision to end input tax credits, which affects developers. Removal of input tax benefit is liable to knock their margins.

The GST Council should define the limit to which the opening input-tax credit balance on April 1, 2019, can be used by builders. They should further narrow the other methods of transition.

If these concerns are addressed properly, then it will definitely promote the Construction and Real Estate industry to a great extent and increase the efficiency of doing business in India.

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