GST Council forms committee to study taxation of real estate sector under GST

The Government has announced the formation of the Group of Ministers (GoM) for Study of Real Estate sector on 15th January 2019, under the leadership of Nitin Patel, Deputy Chief Minister of Gujarat. The recently concluded 32nd GST council meeting decided on the formation of a committee instead of taking any hurried call on the issues faced by the sector.

The 7-member committee has ministerial representations from Karnataka, Goa, Maharashtra, Kerala, Uttar Pradesh and Punjab. The press release stated that the Secretary for the GoM for advancing the Real Estate Sector under GST regime is Manish Sinha, Joint Secretary (TRU-II), CBIC. The Conveners of Law Committee and Fitment Committee will assist the GoM.

There is no definite mention of a deadline for submission of the report compiled by the committee. Given the Union Budget 2019 is around the corner, one may predict that the next GST council meeting can be conducted anytime in Mid-February 2019, and can include severe deliberations around the housing sector issues.

The terms of reference (TOR)’s are crystal clear with analysis of GST rate on housing sector topping the list. Followed by this, the committee must examine whether or not the residential Construction Units should be canopied under a distinct composition scheme under GST.

Apart from residential properties, whether or not the entire real estate must be given an option to join a scheme such as composition scheme or it’s like, will also be studied by the committee.

The GST council will also be deciding the aspects of taxability under GST of the Transfer of Development Rights (TDR) and Development Rights in a Joint Development Agreement (JDA).

The committee will look into the legality of inclusion/exclusion of land or any other element, in Composition and suggest a Valuation Mechanism for the same.

GST Council will be studying in detail the ways to boost the real estate sector currently going through a rough phase. A Real estate advisory ‘Anarock’ stated in its report, “GST on under-construction properties was a major hurdle in 2018, discouraging the buyers from purchasing properties that fell under its gambit. The twin issues of stalled/delayed projects and financial stress within residential real estate augmented interest for ready-to-move-in properties with most of the buyers favouring to buy what they can see.”

Presently, the sale of land is neither supply of goods nor services and hence does not attract GST. Also, the resale properties or the newly completed properties that have been issued a completion certificate from the local authority do not fall under the compass of GST.

Supply of launched projects and under-construction properties attract GST either at 8% for Homes Purchased Under Credit-Linked Subsidy Scheme or at 12% for the rest, with the availability of the Input tax credit. The cost of land included in the sale will be deducted at a 1/3rd ratio from the total sale price to assess the value of supply of flats or houses.

Any other renovation or works contract services for construction will draw a GST charge at either 12% for government contracts or affordable housing and 18% for the rest.

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