The 33rd GST Council meeting was initially scheduled to take place on 20th February 2019 through video conferencing. However, it was postponed to Sunday, 24th February 2019 by the Finance Minister Mr. Arun Jaitley. Such a decision was undertaken as a result of the opposition raised by the finance ministers of certain states. The contention was raised on account of conducting the Council’s meeting through video conferencing.The finance ministers wrote to Mr. Arun Jaitley seeking postponement of the 33rd GST meeting to a proper day.They wanted to physically meet in New Delhi to discuss the issue of GST rates for the real estate sector. The consensus was of the view that such crucial decisions should be undertaken by meeting physically and not via video conferencing. The GST council met for the first time after Interim Budget 2019 which was announced on February 2, 2019.
The agenda of the meeting was to:
- Provide relief to the buyers of the under construction residential properties and
- Have a unified tax rate on lotteries
Recommendations Proposed by the GOMs to the Council on 20th February, 2019
In the 32nd GST Council meeting, held on 10th of January 2019, Group Of Ministers(GOMs) was formulated to further deliberate on the above issues. Following were the recommendations proposed by the GOMs to the GST Council:
- The GOM on real estate had suggested to slash the GST rate on under construction properties from current 12% to 5% without ITC. In addition to this, it had proposed that the GST rate on affordable housing be reduced to 3% or less without ITC from current 8%.
- Furthermore, GOM suggested to the council that complete exemption up to 30 square meters be given to the affordable housing sector. Also, a combination of benefits be granted to economically weak home buyers was proposed. They advised that this could be achieved by considering changes in the definition of affordable housing.
- The GOM on lotteries had suggested that the council should come up with a uniform tax rate on lotteries run by either states or authorized private players. The GOM had suggested to keep either 18% or 28% as the GST rate on lotteries. Currently, the state lotteries attract 18% GST. Whereas, lotteries run by state authorized private players attract 28% GST.
- On the recommendations of the GST Council, the due date to file returns in form GSTR 3B for the month of January, 2019 was finalized as 22nd February, 2019. Furthermore, if your principal place of business is in Jammu and Kashmir, then the due date for filing GST returns for the month of January, 2019 would be 28th February, 2019.
Recommendations of the 33rd GST Council Meeting on 24th February, 2019
The 33rd GST Council Meeting, adjourned on 20th February 2019, finally took place on Sunday, 24th February 2019. During the said meeting the council members addressed issues related to GST rates on under- construction properties and lotteries. However, final details of the changes undertaken in the meeting would be drafted in a circular by the Law and Fitment Committee. The due date for the same is 10th March, 2019.
These guidelines will be presented to the GST Council as recommendations by the GOMs. And the notifications, announcing such recommendations, will be released for public as soon as the GST Council approves them. Furthermore, such recommendations would come into effect from 1st April, 2019.
I. Changes in GST Rates on Real Estate Sector
To make housing affordable for middle, neo-middle and inspirational classes, the council rationalized GST rates on under – construction residential properties.
Such recommendations are proposed taking into consideration the ongoing laid back investment activity in the under – construction housing segment. These recommendations are a move towards realizing the national mission for urban housing that stands as ‘Housing for All by 2022.
As per the mission , the intent of the government is to ensure that every citizen in India owns a house and the urban areas are free of slums.
GST Rates On Under – Construction Housing Rationalized
Pre GST Era
In the pre – GST era, two main taxes were levied on under – construction housing projects:
- State Levied Value Added Tax
- Center Levied Service Tax
Therefore to understand the calculation of tax on an under – construction housing project, we can divide the total cost into three parts: (i) Cost of Land (ii) Materials Cost and (iii) Labor Cost. Now VAT and Service Tax were levied on different cost components in the following manner:
- Cost of Land: Neither VAT nor Service Tax was applicable on such cost.
- Materials Cost: The material cost component was chargeable under VAT.
- Labor/Cost of Construction: The labor or construction cost component was chargeable under Service Tax.
So in cases where separate records for material and labor costs could be maintained, VAT and Service Tax were applied separately on each of the components. However, it was not that easy to maintain separate records. Therefore, a more rational way of calculating such taxes was implemented by the government.
Accordingly, the following table showcases the value of contract that was liable for tax.
As we can see, under the Pre – GST, era developers had to deal with multiple taxes like VAT and Service Tax. Moreover, the developers were not eligible for any ITC for excise duty, central sales tax and entry tax paid on procurement. Such a set up lead to increasing the final price of the real estate property. Also this made the developers more conservative in disclosing the tax bifurcations to final consumers.
Post GST Era
In the post GST era, the rate on under – construction normal residential property was pegged at 18% (This was 12% in case of affordable housing projects). Moreover, an abatement of one – third on the total construction value was provided towards land. Accordingly, the effective GST rate for construction services came to be 12% (which was 8% in case of affordable housing projects).
Following table shows the calculation of the effective GST rates on under – construction residential projects.
Recommendations Made By 33rd GST Council Meeting
In the 33rd GST Council meeting, these rates were further rationalized. This is undertaken to give boost to the real estate sector.
(i) GST shall be levied at an effective rate of 5% without ITC on under – construction residential properties.
(ii) In case of affordable housing projects an effective rate of 1% without ITC shall be levied.
Definition of Affordable Housing
The GST Council has adopted a twin definition approach for defining for affordable housing. It defined Affordable Housing based on: (i) Carpet Area and (ii) Cost of the Under – Construction Property
1) Carpet Area of the Residential House/Flat
A residential house/flat would be considered an affordable house/flat if it has a carpet area of up to:
- 90 sqm in non-metropolitan cities/towns and
- 60 sqm in metropolitan cities
2) Cost of the Under – Construction Housing Property
A residential house/flat would come under affordable housing if its value is up to Rs 45 lakhs. This is both for metropolitan and non – metropolitan cities.
Metropolitan Cities include Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).
II. GST exemption on TDR/ JDA, long term lease (premium), FSI
The Intermediate tax on following development rights shall be exempted. These include:
- Transfer Development Rights (TDR),
- Joint Development Agreement (JDA),
- Lease (premium),
Such an exemption would be given only on the residential properties on which GST is payable.
The details of the scheme shall be worked out by an officers committee. And the same shall be approved by the GST Council in a meeting to be called specifically for this purpose.
Under the current scenario state run lotteries that do not have private distributors or marketing agents attract GST rate of 12% on the face value of the lottery ticket. However, lotteries operated by state authorized private distributors fall under a higher tax slab of 28%.
After the 32nd GST council meeting, the North – Eastern states had asked the council to review GST rate on lotteries. This came on the back of plea put forth by States running lotteries on their own. Such states were of the view that the council should apply separate GST rates on state run lotteries and those run by authorized private agents. However the north – eastern states were of the stronger view that a unified GST rate on lotteries should apply instead. This was proposed on the grounds that authorized dealers in smaller states do not have an administrative set up like the bigger state lotteries. Hence, in order to stay competitive in the lottery market such states proposed to have a unified GST rate.
However in this meeting GST Council decided that the issue of tax rate on lottery needs further discussion in the GoM constituted in this regard.