The Indian real estate sector has been seeing a bonanza of late in terms of Government sops, incentives and buyer interest. There have been several factors that have impacted the sector over the last few years, chief amongst which was demonetization or the giant killer as some called it! However, this cleaned up the sector, once notorious for being the biggest black money dump and subsequent reforms such as GST (Goods & Services Tax) and RERA have transformed things considerably. Particularly, RERA has ushered in more accountability of real estate developers and safeguards buyers. These moves have enhanced investor and buyer confidence gradually which is always good for the market.
End users are returning to the market and speculative activity has come down strongly. The Government has been a major growth driver for Indian real estate as well, courtesy its emphasis on affordable housing as a key infrastructural component and the interest subsidies and sops offered under the Pradhan Mantri Awas Yojana (PMAY) under Housing for All by 2022. Affordable housing has become so popular that several realty players are now coming up with such projects on the peripheries of major cities and also in Tier-2 and Tier-3 cities. The Union Budget 2019-20 has also been a game changer for the sector. In IPL and World Cup season, it is only fair to say that the Budget literally hit the ball out of the park with several measures. Personal income up to Rs. 5 lakh was made non-taxable, thereby putting more money in the hands of homebuyers while TDS thresholds were hiked to Rs. 2.4 lakh from Rs. 1.8 lakh on rental income.
The Ministry also announced zero taxation on notional assumption of rental income on second homes which were self-occupied. Also, there was a capital gains exemption announced up to Rs. 2 crore on two properties once in a lifetime. These measures have made investing in a second home more lucrative along with encouraging investments for rental returns, two moves which will greatly boost the realty sector. Then, in a major coup, the GST Council decided to lower its rates for GST on under construction properties to 5% from 12% while reducing GST to 1% from 8% on affordable housing units. This move has literally given a booster dose to Indian real estate in conjunction with all the above measures. It has contributed hugely towards bringing back more homebuyers and growth in sales figures and new launches alike. It has also contributed towards the new-found spring in the step of several developers! That’s the story till now.
Deadline increased for choosing previous GST rate in case of realty developers
The GST Council had previously stated in March 2019 that real estate companies/firms will get permission to switch to the GST rate of 5% in case of residential real estate units and 1% in case of affordable housing units from the 1st of April, 2019, without any input tax credit (ITC) benefits. Now, the deadline for adhering to the earlier rate has been extended.
What does this mean? Here’s looking at the key aspects surrounding this decision:
- The deadline has been extended by the GST Council for real estate developers to choose the older GST rates with ITC (input tax credit).
- The deadline has now been extended till the 20th of May, 2019, as per reports.
- This applies for ongoing real estate projects of these developers/companies.
- Not meeting the deadline means that they will have to shift to the lower tax rates which have been newly introduced by the Council. Developers will not be able to claim any input tax credit (ITC) benefits as a result.
- In case of ongoing residential real estate projects, developers have the choice to retain the 12% GST rate with input tax credit (ITC) or the 8% GST rate with ITC for affordable housing projects.
- Otherwise, they can switch to the rates of 5% and 1% as GST for under construction and affordable housing units respectively minus ITC (input tax credit) benefits.
- The previous deadline for making this choice was the 10th of May, 2019 and now developers have till the 20th to inform their choice to their jurisdictional officers.
- This one-time choice between the two slabs has been provided to developers by the CBIC (Central Board of Indirect Taxes and Customs). Once a particular rate is selected by the developer for ongoing residential projects, there will be no other modifications allowed for the same.
- Real estate developers are reportedly working out the overall cost benefits with regard to changing the tax rates. They were facing some issues in taking the final decision and hence the deadline has been increased by the Government to make things smoother for them.
Other developments to be aware of
In other major developments, real estate developers will have to compulsorily refund the GST that has been shelled out by a homebuyer in case he/she cancels the booking for the apartment in the previous fiscal. There will be allowances for credit adjustments in case of any such refunds as per the CBIC (Central Board of Indirect Taxes and Customs) as part of its clarifications on the realty sector.
There have been major anxieties pertaining to the switchover to the new rate of 5% GST for under construction residential units and 1% for housing units in the affordable category minus any ITC (input tax credit) benefits. This has been implemented from the 1st of April, 2019. In case of ongoing residential projects, as stated above, developers can choose between the new rate and previous slab of 12% and 8% for under construction and affordable housing projects respectively. Developers can get Credit Notes issued to homebuyers based on Section 34 provisions in case of any changes in the pricing of homes or any booking cancellations.
Developers can also adjust the taxes paid with regard to the amounts in these credit notes as per the authorities. Suppose a real estate developer has paid up Rs. 1 lakh as the GST amount at 12% for any booking before the 1st of April, 2019. In this scenario, he/she can adjust this amount of Rs. 1 lakh in paid taxes in case of the booking being cancelled on or post the 1st of April, 2019. This can be offset against other GST liabilities according to reports. Experts feel that these measures may help in complete neutralization of overall tax burdens on the buyers in case they cancel bookings.
Here are some other aspects to keep in mind:
- TDR (Transfer of Development Right) or the acquisition of land by the developer from the owner will not have any GST applicable on agreements that were entered into on the 1st of the April, 2019 or after this date.
- For agreements made before this date, the real estate developer can claim the credit in case of GST which has been paid already. 18% was the taxation rate for TDRs as per reports.
- Towers which are being registered in the form of different housing projects on the RERA site, will be taken as completely separate projects and developers will have to keep separate books of accounts for all towers.
- In case developers have taken 12% as the GST from homebuyers from 1st April, 2019 but later choose to change to the 5% GST rate, they will have to refund the additional 7% to buyers.
- Real estate developers are expected to analyse the old and new GST rates and then take clear decision as to the rates they will choose for ongoing projects. These decision ought to be clearly transmitted to all homebuyers at these projects.
Once this is out of the way, the Indian real estate sector is expected to continue its steady march towards revitalization and future growth. This forward march of the industry should also contribute towards greater home sales and launches in the long run.