After being post-postponed a few times, the 33rd GST Council meeting came to a draw on the 24th of Feb 2019. With the elections around the corner, it was expected that the council would introduce sops to appease voters in favour of the incumbent. The prominent expectations of the real estate sector from the GST Council ahead of the meeting were as follows:
- First and foremost, the sector expected a reduction of Goods and Service Tax rate on under-construction residential projects. It was proposed that the GST Council reduce GST on non-affordable housing from the existing 12% to 5%. And in the case of affordable housing, from 8% to 3%.
- In both the cases, it was proposed that Input Tax Credit (ITC) should be removed as it remains unutilised due to the high tax on cement and other raw materials, and it is effectively higher than the tax liability.
- Developers also expected the GST rates on cement should be slashed from 28% to 18%. Cement is basic raw materials and accounts for a large part of construction cost. Reduction in GST rate on cement would, therefore, bring down the cost of construction considerably.
- It was also expected that the Council would introduce a Duty drawback scheme under GST for exporters. Under the GST regime, there is no provision of compensation to them, other than basic customs duty (BCD).
While not all of the aforesaid expectations were fulfilled, the GST Council did take some crucial decisions in order to boost the real estate market. Some of the highlights of the 33rd GST Council meeting are as follows:
- GST for affordable housing has been slashed to 1% without the benefit of Input tax credit (ITC). Earlier the rate was 8%. This will directly save cost for developers, who in turn will pass on the benefit to home-buyers.
- GST rate for non-affordable housing has also been reduced to 5% without ITC. Earlier, the rate was 12%.
- Affordable housing has been redefined under GST law. It now includes flats with a value of up to Rs. 45 lakh having a carpet area of not more than 60 sq metres, in case of metro cities. In the case of non-metro cities, the carpet area can be up to 90 sq metres. This definition was important as a lot of projects in the market were hard-selling themselves as ‘affordable housing’ to take advantage of the government’s flagship.
- GST exemption has been proposed on Transfer Development Rights (TDR), Joint Development Agreement (JDA), and long-term lease for residential properties on which GST is payable.
- Unfortunately, no rate cuts were discussed for cement. It will continue to be charged at the existing GST rate of 28%.
- The Council also did not come to a conclusion on lottery rate slash.
- While there was a proposal to introduce a duty drawback-like scheme for exporters, no decision on that account was finalised.
The above recommendations were said to be implemented by the 1st of April 2019 after addressing the transitional issues faced by builders who have unfinished projects on the date of implementation of new rates.