The Central Board of Indirect Taxes and Customs (CBIC) has issued a set of Frequently Asked Questions (FAQs) wherein it was clarified that a home buyer cannot decide which GST rate will be applicable on the amount remaining on an under-construction flat.
The Finance Ministry had lowered the rate of GST on real estate sector on 1st April and given an option to the builders to chose a one-time option of sticking to the old rate or going for the new one.
The present FAQs dealing with the new GST slabs for the real estate sector with clarification on 41 issues.
With regard to the question whether it is the buyer or builder who chooses between new and old tax rates, the Board clarified that it is the builder who can exercise the option to pay tax on construction of apartments at the old rate of 12 per cent. This can be opted for by May 10 at the latest.
“If the builder does not exercises his option to continue to pay tax at the old rate…the effective GST rate applicable on all your (buyer) instalments payable to the builder on or after April 1, 2019, shall be either 1 per cent or 5 per cent, depending on whether the apartment is an affordable or other-than-affordable residential apartment,” it said.
If the builder chooses to stick to the old rates, the buyer will have to pay 8 per cent (for affordable) or 12 per cent (for others). The builder, in this case, gets an input tax credit (ITC), which should be passed on to the buyer.
A few months ago, the GST Council, the upper policy-making body, had suggested a two-rate structure for under-construction flats or ready-to-move-in flats where the completion certificate has not been issued at the time of sale (buyers do not have to pay GST on completed projects). It prescribes 1 per cent GST for affordable houses and 5 per cent for others. There will not be any ITC. The new rates will be applicable on new projects (launched after April 1) and ongoing projects.
The FAQ has listed criteria for the project to be considered as ongoing (for which the builder can exercise a one-time option of sticking to old rates). These include the project commencing before March 31, 2019, the completion certificate not being issued, or first occupation of the project not taking place on or before March 31, and apartments that have been, partly or wholly, booked on or before March 31. Even projects receiving occupation certificates for just a part will be considered ongoing projects.
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