Optionality for Developers: Either Go for New Tax Regime or Continue With the Old One

The GST council meeting held in February revamped the existing tax structure acting in the realty sector. Earlier it was 12% on real estate and 5% on affordable housing inclusive of Input Tax Credit. Input Tax Credit or ITC is the credit on the material used in the project. But in the meeting, the tax structure was revised to 5% on real estate and 1% on affordable housing without ITC. This move was somehow beneficial for the buyers, but the developers were unhappy. Their concern was not with the GST but about the ITC which the government eliminated in the meeting. 

Majority of the developers collectively showed their concern regarding the change in the tax structure. The government eventually proposed a choice to the developers. The GST council meeting held last week resulted in some sort of relief for the developers, it offered a choice to the developers to either opt for the previous GST rates with ITC or choose the new GST rates without ITC. This new change will not impact the homebuyers and solely focused on the problems of the developers. Another condition that acted in the new change is that the developers only can have a choice to opt between the new and old GST rates for the projects that have started before 1st April 2019. Projects starting after 1st April 2019 will not give any chances to the developers but to continue with the new GST rates.  

This change will have zero impact on the home buying process, as the perspective in February showed that the property pricing will be reduced. Last meetings result was a sigh of relief for the developers. Albeit the government provided the developers with options, they still need to work on the pricing based on the local market situation. Real estate experts are saying that these decisions don’t have much scope for the developers to increase the price in the realty sector. The change in the pricing of the property will be solely due to the GST reduction in past February and depends on the market situation.

Pankaj Bajaj, Eldeco MD talks about the time period to be given to the developers to choose between the two schemes. He says “2-3 months is a fair time period for the transition. It is a fair chance that the developers are offered optionality and continue with the earlier GST tax including the Input Tax Credit”.

 

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