--Pankaj Sharma
In an effort to simplify the tax process and ensure transparency in the real estate sector, the Indian government introduced new GST guidelines for builders and developers. These rules, which came into effect on April 1, 2019, have significant implications for both ongoing and new residential projects. Here's a straightforward explanation to help you understand what these changes mean.
Imagine Ramesh, a builder in Mumbai, working on a large housing project that includes both affordable and regular residential units. With the new GST rules, Ramesh has to decide between two options for his ongoing project. For the affordable housing units—homes with a carpet area up to 60 sqm in metropolitan cities or 90 sqm in other areas, priced at or below ₹45 lakhs—Ramesh can opt for a 1% GST rate without availing Input Tax Credit (ITC). For the other residential units in his project, he can choose a 5% GST rate, again without ITC. This means Ramesh cannot claim a refund on the taxes paid for materials and services used, which could affect his overall project costs.
Now, let’s take the case of Priya, another builder in Bangalore, who missed the deadline of May 10, 2019, to inform authorities of her GST preference. Since she did not communicate her choice in time, Priya is automatically presumed to have opted for the 1% or 5% GST without ITC. This automatic assumption could impact her financial planning and project budgeting.
An interesting twist in these rules is related to projects with mixed-use spaces. For instance, if Priya’s project includes a commercial space that does not exceed 15% of the total carpet area, the entire project can still qualify for the residential GST rate. This means she can benefit from the lower 5% GST rate for the commercial spaces within her residential project, providing a potential cost-saving opportunity.
For new projects, the guidelines are straightforward. Any residential project commenced on or after April 1, 2019, will attract a 1% GST rate for affordable housing and a 5% GST rate for other residential apartments, both without ITC. Take the example of a new project started by Vikram in Delhi. His affordable housing units will be taxed at 1%, while the other residential units will be taxed at 5%, simplifying his tax calculations and ensuring compliance from the outset.
Understanding these new GST rules is crucial for builders and developers like Ramesh, Priya, and Vikram, as it directly impacts their project costs, pricing strategies, and overall financial planning. By staying informed and making timely decisions, they can navigate the complexities of GST and ensure their projects remain viable and profitable.
The author is an Inspector in the Punjab State GST Department