Following last month’s decision to reduce tax rates for the housing sector, the Goods and Services Tax (GST) Council will meet via videoconferencing on Tuesday to finalise the rules to enable transition into the lower GST rates which would be effective April 1.
The Council will decide the rules for real estate developers who have already availed input tax credit (ITC) for under-construction projects before the new rates kick in from next financial year.
Also, the officials are learnt to have converged towards a minimum sourcing norm of 80 per cent from registered dealers to address concerns raised by some states about evasion and flow of black money in absence of facility to avail input tax credit under the revised rate structure for housing sector.
The 80 per cent sourcing norm is likely to exclude purchase of capital goods so that the major component is from purchase of construction material such as cement and sand.
The GST Council will also discuss norms for residential properties where there is mixed use of land, for example, where a shop and a residence exist on the same piece of land. The Council will decide on a specific ratio for the mixed use of land to be eligible under the new rate structure for housing.
In its 33rd meeting held in February, the Council had decided to cut the GST rate for residential housing to 5 per cent and for affordable housing to 1 per cent along with removal of ITC from the effective rates (after one-third abatement of land) of 12 per cent and 8 per cent, respectively.
Also, the definition of affordable housing was redefined by linking it to cost as well as carpet area: flats up to Rs 45 lakh and with carpet area of 60 sq m in metros (Delhi-NCR, Bangalore, Chennai, Hyderabad, Mumbai-MMR, Kolkata) or 90 sq m in non-metro areas.
Many real estate developers have raised concerns that lower GST rates may not translate into lower prices as denial of ITC will push up costs for them, especially since some of the inputs like cement continue to remain in the topmost tax slab of 28 per cent under GST. Also, real estate developers are concerned about possible action by anti-profiteering authority in the future if they do not lower prices.
The GST Council had decided to slash tax rates for affordable and non-affordable housing in a bid to boost the residential segment of the real estate sector amid reports of slowdown in the real estate sector and low offtake of under-construction houses. Lower offtake restricting money flow in the sector was also among the concerns that led to the lowering of the GST rates.
Also, it was felt that builders were not passing on the benefits of input tax credit to homebuyers as lower prices. Builders and developers were adding the ITC element to the cost and then taxing buyers on the total amount, instead of removing the benefited component of ITC and calculating the tax on the balance.