The
GST council that convened in March 2019 allowed real estate players
to shift to lower GST rates of 5% (affordable residential houses) and
1% (non-affordable residential houses). However the catch being that
the builders will not be able to take Input Tax Credit (ITC).
The
effective GST rates have been reduced to 5% from 12% for affordable
house category and to 1% from 8% for non-affordable house category.
Apart from the ITC not being made available, the builders will also
have to make 80% of their building project-wise purchases from
registered vendors only. One such item would be cement, which can
only be purchased from registered vendors.
Now
coming to the timelines. For a project that commenced on or after
April 1st, the new GST scheme is mandatory wherein
construction services are provided along with the transfer of land.
For pure construction though, the existing rate of 18% will continue
to apply. Commercial projects will still attract the same 18% GST
rates and there will be no changes to it.
Now
coming to ongoing projects. The builders will have an option to
choose before May 20th, 2019, whether to avail the new
scheme or continue charging the old GST rates. The decision would
have a great impact on the cost structure and the future sales.
If
the builder adopts the new scheme, the credit pertaining to booked
units and installments paid have to be reversed for those units
booked as on 31st March, 2019. If the builders holds on to
the old scheme, there is no commercial impact and they will be able
to collect the same 8%/12% from customers. Further, the builder can
collect credit on purchase and it will reduce the cost to some
extent. However, the promoters who are already registered under RERA
may not be able to revise the price for the booked flats also.
Here
are a few scenarios,
1.
If the price of the flat quoted to the customer is inclusive of
taxes, then the new scheme may be beneficial for the builder.
However, if the price quoted to the customer is exclusive of taxes,
then the old scheme may be better for the builder.
2.
If the project is almost completed i.e. 80%-90%, then it may be
beneficial for the builder if he could pay GST under existing scheme.
In this case a majority of inputs or input services would have been
procured and credit on such procurement's would have been availed.
However, if the project is in initial stages of construction where
major part of inputs or input services is not procured, then it may
be beneficial for the builder to opt for new scheme.
3.
If the project is at premium places wherein the essential cost
component is due to premium value of land and construction cost and
corresponding credit is not substantial, it may be ideal to go for
new scheme.
4.
In case the expected flats to be sold before receipt of Completion
Certificate are not many then the New Scheme could be chosen. This is
because in such cases, even in the exiting scheme, the credit
attributable to unsold flats has to be paid back.
The
decision should be made on a detailed analysis of figures on
different aspects and also the qualitative aspects as to market
conditions, customer relationship, clauses in the agreement, etc may
be seen.
As
for consumers, the new scheme looks to be a booster if all the costs
are not passed on by builders to the customers by increase in rates.
Comments
Post a Comment