Higher GST rate will apply to dues on finished real estate projects

CBIC comes up with another set of FAQs: Higher GST rate will apply to dues on finished real estate projects

In a bid to clear the air on GST on real estate, The Central Board of Indirect Taxes and Customs (CBIC) has come out with another set of frequently asked questions (FAQs). Buyers who’ve got an occupancy certificate (OC) for their house before 1st April 2019, the payment of remaining dues would draw 12 percent GST (Goods and Service Tax) rate.

The GST Council had earlier decided that from April 1, builders of all under-construction houses would have two options. They will either have to pay 12 percent GST with input tax credit or 5 percent GST without input tax credit. There is no GST on completed residential projects, but an OC needs to be given.

From 1st April, all new projects will have to pay 5 percent GST without input tax credit. There was confusion in this regard, how much rate would apply to the pending dues on houses where OC has been given before 1st April.

“Clarifications on some technical ambiguities like non-applicability of new rates for projects completed before April this year should help resolve some involved issues for this sector,” said Abhishek Jain, partner at EY India.

“This clarification is important for various projects where the OC has been received, but demands are still pending to be issued,” said Pratik Jain, partner at PwC India.

Another query from real estate companies was whether the supply of exempt items from GST would be taken into consideration while calculating the requirement of 80 percent of raw material purchased from registered entities. The GST Council had imposed the condition that 80 percent of the raw material had to be bought from registered entities while giving the concessional rates of GST to the builders.

While calculating this yardstick, the CBIC clarified that the items purchased from exempt entities would also be factored. The development rights are given by landowners to the builders while buying land to build flats or commercial offices. On these services, 18 percent GST is applicable, but only in the case of commercial offices. However, these rates are paid on a reverse-charge basis, which means builders have to pay the tax.

The CBIC also cleared the air about the payment of GST, in case the landowners are not registered. It said that the GST will have to be paid, irrespective of the fact whether landowners are registered or not, said Abhishek Jain.

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