On 19 March 2019 at GST Council meeting, they passed a new tax structure for the property. As per the decision made by the council, builders have the chance to choose between old tax structure with an input tax credit (ITC) or the new 5% and 1% rates without ITC for their under-construction projects. They have one chance to choose from old tax rates and new tax rates for the projects which get started before 1 April 2019. For all the new projects new tax rates are applicable.
Added to the new GST rates, the council also decided that the projects with up to 15% commercial space will be treated as a residential property, for example, the buildings which have areas like restaurants, clubs or any shops will be categorized as residential properties. One more condition is added that about 80% procurement by the developers should be from registered dealers. If they fell short from 80% then they have to pay 18% of tax and also tax on cement purchase from an unauthorised dealer shall attract 28% duty. The new tax rates are available with the condition that ITC shall not be available and 80% of products shall be purchased from registered dealers.
After the 33rd meeting of GST Council, finance minister Arun Jaitley said that the benefits of ITC were not being passed to consumers by the builders and that's why a group of ministers was set up to suggest changes in tax on real estate. So, the council decided the removal of ITC and the new rates will be 5% for normal housing and 1% for affordable housing. He also said that after the removal of ITC, builders now have to purchase about 80% of inputs from GST registered dealers.
The GST Council also changed the definition for affordable housing for the purpose of giving GST benefits to flats which are costing up to Rs 45 lac and have 60 sq meters carpet area in metros and 90 sq meter carpet area in non-metros. These changes will help people to buy slightly bigger houses at a reasonable amount. Jaitley further said that GST is not levied to the properties buyers for which the completion certificate has been issued at the time of sale. This will give a boost to under construction properties, because before this people don't want to invest in under construction property because they don't know when a certain project will get completed. So they wait for the project to get completed and there was the shortage of money flow in real estate sector. But with this idea, money flow will increase in the real estate sector.
New GST rates are applicable from 1 April 2019. The reduced rates of under construction projects will increase their demand and bring more transparency for home buyers. This will attract more people towards under construction units because in the absence of ITC availability for developers the base price remains stable.
Reduction in GST rates can lead to a monthly saving of Rs 800 to 1000 for a home buyer, as we consider an average ticket of Rs 2.5 million with 7% tax reduction in case of affordable units. Savings could also be in the range of Rs 2,750 to 3000, considering an average ticket size of Rs 7.5 million with 7% reduction in tax from non-affordable units until developers increase their prices because of the unavailability of ITC. The real estate market will witness a huge boost in demand of under-construction properties if the base price remains stable.
Since the new GST rate for under construction projects is effective now, any new buying in such projects could be postponed until the beginning of FY20 (Financial Year 2020). Hence the FY19 sales for most developers who have projects in the under-construction stage may slow down.
The new tax rates resulted in overall price reduction. In the past system, if builders were gaining any benefit of ITC, the new system will eliminate any such possibilities now, and this may result in builder re-pricing properties and apartments. If the builder has already signed a sale agreement into which ITC is included but the construction progress would be raised under new rules means without any ITC. So, there are chances that the builders negotiate prices as base price should go up without including in ITC.
The new tax system brings more clarity on Tax structure being followed by real estate. In the present, there was lack of transparency in this system, that the benefits of ITC got passed to buyers or not. The effective tax paid by home buyers in the current system is thus not useful.
Raghuvir Developers have different projects that are in booking phase or under construction. You have this great chance to book these under-construction flats to reap the benefits of new tax rates. Raghuvir Spalex and Raghuvir Spectrum are two under-construction projects being built under these new regulations. You can contact us for many other upcoming projects.
We will offer you complete transparency over the property prices and tax rates so that you can make an informed decision about buying a new property.