In its 33rd meeting held on 24 February 2019, the GST Council has recommended reduction in GST rates for under-construction residential properties. The GST Council has proposed a slab rate of 1% for the affordable housing segment and a slab rate of 5% in all other housing segments without benefit of the input tax credit (ITC) of GST paid on the inward supplies of goods and services. The change in rate is proposed to be made effective from 1 April 2019.
The GST Council also recommended exemption on intermediate tax on transferable development rights (TDR), joint development agreements (JDA), floor-space index premium, etc., in case of residential properties on which GST is payable. The exact modalities of such exemption will be recommended in a subsequent meeting of the GST Council.
Notifications operationalizing the above changes are awaited.
It is not clear whether the reduced GST rate is optional, subject to foregoing of ITC, or mandatory for all. Denial of ITC would lead to increase in the cost necessitating price revision by the builders/developers. Price revision may lead to complaints of profiteering by the home buyers on account of not passing the commensurate benefit of reduction in rate of tax. Builders/developers would be required to carry out detailed impact analysis of loss of ITC and commensurate increase in the price to avoid anti-profiteering allegations. It also needs to be seen whether price charged for preferential allotment would be eligible to reduced rate.
In case of JDAs, there has been ongoing controversy as to whether such arrangements are exigible to GST. Industry is of the view that JDA involves nothing but transfer of land and, hence, outside the ambit of GST levy. However, the Government of India had earlier specified the time of supply in case of JDA transactions. This notification implicitly has confirmed that JDA is exigible to GST. Now, the proposed exemption will reinforce that JDA are indeed taxable supply.
It is pertinent to note that interim tax on JDA is proposed to be exempt if GST is payable on the residential properties. GST is payable on supply of residential property only if the consideration is received before completion of the project. No GST is payable on supply of residential properties which are sold after issuance of completion certificate. There is no clarity as to whether GST would be payable on JDA if a part of the project is sold after issuance of completion certificate. If yes, the question remains as to who would be liable to pay such GST, and what would be the time of supply.
It is expected that notification implementing the recommendation will clarify all these aspects.
- Dinesh Agrawal (Executive Director) and Abhishek Deodhar (Associate)
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