The GST Council is a constitutional body created under Article 279A of the Indian constitution. This council is empowered to make recommendations to the Union and State Governments on various issues related to the Goods and Services Tax (GST) including but not limited to rates rationalization recommendations and inclusion/exclusion of products or services under GST. Such changes are implemented as GST updates. The Union Finance Minister is the chairman of the GST Council with other council members including Union State Minister of Revenue or Finance and Ministers-in-charge of Finance/Taxation of all State Governments. In terms of voting weightage, the Central Government’s votes account for one-third of total votes, while State Government representative votes together account for the remaining two-thirds of total votes. The following sections contain details of recommendations made by the GST Council at its recent meetings.
34th GST Council Meeting Updates
The 34th GST Council Meeting was held on 19th March 2019 and mainly focused on providing clarifications regarding the new real estate rates of 1% (for affordable housing) and 5% (for non-affordable housing) applicable from 1st April 2019 onwards.
Option of retaining existing GST Rate for On-going Projects
In case of on-going projects, promoters will get the one-time option of paying tax at the old GST on real estate rates of 8% (for affordable housing) and 12% (for non-affordable housing) with input tax credit benefit. This option is available only in cases where construction/booking of under construction flats has started before 1st April 2019 and has not been completed by 31st March 2019. This is to be provided as a one-time option and promoters will have the option of availing this benefit within a pre-determined time period.
Applicability of New GST Rates on Real Estate
The GST Council has also provided clarification regarding applicability of the new GST Rates for real estate sector. The following are the key criteria for applicability of the new rates of GST on real estate:
- New 1% rate without input tax credit (ITC) for affordable housing segment. Affordable housing defined as those with area of 60 sq. meters in metros and 90 sq. meters in non-metros with value of Rs. 45 lakh or less.
- The 1% GST rate without ITC is also applicable to housing projects being constructed by state/central government that currently feature the 8% GST rate with ITC.
- Housing in the non-affordable segment will feature the new 5% rate of GST without ITC on houses booked after 1st April 2019. If booking has been made prior to 1st April 2019, the new rate will be applicable only to instalments paid after 1st April 2019.
Conditions for New GST Rate on Real Estate Implementation
In the 34th GST Council Meeting, the council has provided further clarification regarding the implementation of new rates for real estate. The following are key conditions for applicability of the new real estate GST rates:
- No input tax credit can be claimed by the promoter.
- Those opting for the lower rate of GST on real estate are required to purchase 80% or more of their inputs/input services from GST registered individuals/businesses. If less than 80% of inputs/input services are purchased from registered persons, tax will be payable at 18% using reverse charge mechanism (RCM). In case of cement being purchased from unregistered person, 28% tax will be payable based on RCM system.
33rd GST Council Meeting Slashes GST Rates on Real Estate
The 33rd Council Meeting held on 24th February 2019 has introduced much anticipated rate cuts for the residential real estate sector. The lower GST rates introduced by the Council will come into effect on the 1st of April 2019.
New GST Rates on Real Estate Transactions
The new GST rates on real estate transactions will be as follows:
- GST will be levied at the rate of 5% without ITC benefit (earlier 12% with ITC benefit) in case of residential properties that are not part of the affordable housing segment.
- GST will be levied at the rate of 1% without ITC benefit (earlier 8% with ITC benefit) in case of residential properties that are part of the affordable housing segment.
It is notable that these new rates will only apply to under-construction residential properties. This is because under existing GST rules, sale of ready to move in properties do not qualify as the supply of a good or service, hence GST does not apply. The new rates will be effective from 1st of April on residential property sales as GST on commercial properties has not been discussed by the GST council.
Definition of Affordable Housing Segment provided by GST Council
The announcement also provided clarity regarding what which residential properties qualified as affordable housing. As per the definition provided by the GST Council, the following are the key features of a residential property that qualifies for the lower GST rate on affordable housing transactions:
- Maximum value of residential property under affordable housing is Rs. 45 lakhs.
- Maximum carpet area of affordable housing property in metropolitan area is 60 square meters.
- Maximum carpet area of affordable housing property in non-metropolitan city/town is 90 square meters.
- Metropolitan areas in India are limited to Hyderabad, Bengaluru, Delhi NCR (limited to Delhi, Greater Noida, Noida, Gurgaon, Faridabad and Ghaziabad), Chennai, Mumbai (including all areas in Mumbai Metropolitan Region) and Kolkata. All other cities and town are considered to be non-metropolitan.
Intermediate Tax Exemption Criteria Introduced
At the meeting, the council also introduced grounds for intermediate tax exemption on real estate in specific cases. Under existing rules, intermediate tax is payable on development rights such as long term lease (premium), JDA (Joint Development Agreement) and TDR (Transfer of Development Rights). Going forward, exemption from this intermediate tax will be available if GST is payable on these residential properties.
32nd GST Council Meeting Increases Benefits for Small and Medium Businesses
The 32nd GST Council meeting introduced a number of measures that are designed to benefit small and medium businesses. The following are the major recommendations made by the GST council at its 32nd meeting concluded on 10th January 2019:
- The exemption for GST registration by businesses has been increased to Rs. 40 lakhs (annual turnover) which is double the earlier limit of Rs. 20 lakhs. This new exemption limit is lower for hill states and north eastern states whose exemption limit has been increased to Rs. 20 lakhs from the earlier limit of Rs. 10 lakhs.
- This meeting also introduced a composition scheme for businesses providing services/mixed services. The limit for such businesses has been fixed at Rs. 50 lakhs with a tax rate of 6%.
- Further benefits were also announced for GST composition tax registered businesses with annual turnover limit for such businesses being increased to Rs. 1.5 crore from the earlier Rs. 1 crore annual turnover limit for the GST composition scheme.
- Additionally, to decrease the compliance burden, going forward, composition registered businesses will be required to file returns only once a year while tax payments will be quarterly based on a simple declaration.
- The GST council also announced GST updates allowing the Kerala state government to introduce a calamity cess of 1% on interstate supply of goods/services for a period of 2 years in order to aid the state’s rehabilitation after devastating floods.
While the 32nd GST Council Meeting focused on providing a more conducive business environment to small and medium businesses, it did not introduce GST updates regarding rates for any products/services.
31st GST Council Meeting Slashes Rates for Multiple Goods and Services
The 31st GST council meeting on 22nd December has reduced GST rates on various goods and services. The new rates applicable through GST Updates are expected to come into effect from 1st January 2018 and the Goods and Services Tax Council did not announce GST rate hikes for any goods/services during the last GST council meeting in 2018.
The following goods were moved from the 28% to the 18% GST slab rate:
- CCTV Video recorders/digital cameras
- Televisions/Monitors up to 32 inches
- Power banks powered by Lithium-ion batteries
- Sports goods, games consoles and related items with HS code 9504
- All items with HS code 8483 including gear boxes, transmission cranks and pulleys
- Used or retreaded pneumatic rubber tires
The following goods will attract 5% GST going forward instead of the current 28%:
- Accessories/parts for carriages designed for differently-abled individuals
The following goods were moved from the 18% GST slab to the 12% rate:
- Debagged/roughly squared cork
- Items manufactured from natural cork
- Agglomerated cork
Going forwards 5% GST will be applicable to the following item instead of the current 18%:
- Marble rubble
The following items will now attract 5% GST instead of 12% GST rate:
- Fly-ash blocks
- Walking sticks
- Natural cork
The GST rate is now Zero for the following products (instead of 12% GST rate applicable earlier):
- Music Books
Zero GST is also applicable through GST Updates to the following products instead of earlier 5% GST rate:
- Unit container-packed frozen branded vegetables (uncooked/steamed)
- Vegetables preserved using various techniques including brine and other preservatives that are unsuitable for immediate human consumption.
GST Rate reduction has also been proposed for the following services:
- New GST rate of 18% instead of 28% for movie tickets over Rs. 100
- New GST rate of 12% instead of 18% for movie tickets less than Rs. 100
- GST exemption is now applicable to Basic Savings Bank Account (BSBD) account opened under the PMJDY (Pradhan Mantri Jan Dhan Yojana).
- Air travel for purpose of pilgrimage via chartered/non-scheduled flights will now attract same rate of GST (i.e. 5% with income tax credit of input services) as scheduled domestic flights.