Builders opting for old GST rate face problems with buyers insisting on paying only 5 pc tax

Builders are facing a piquant situation with homebuyers insisting that they will pay only the new rate of 5 per cent GST on flats even though the developer has opted for the old rate of 12 per cent to take advantage of credit on inputs like paints, cement and steel.

As part of rationalisation of the Goods and Services Tax (GST) on real estate sector, the GST Council has allowed builders to migrate to 5 per cent rate for residential units and 1 per cent for affordable housing without the benefit of input tax credit (ITC) from April 1, 2019.

For the ongoing projects, builders have been given the option to either continue in 12 per cent GST slab (8 per cent for affordable housing), with ITC, or opt for 5 per cent GST rate (1 per cent for affordable housing) without ITC.

Although most of the builders have opted for 12 per cent rate for ongoing projects to avail the benefit of credit of taxes paid on inputs, the customers are insisting that they would only pay the lower GST rate of 5 per cent.

"In the transition phase, there is resistance from buyers to pay GST as per the old rate. We are convincing them and explaining to them about the transition framework approved by the GST Council," said Satish Magar, the newly-elected president of realtors' apex body Credai.

Getamber Anand, the past chairman of Credai, also said buyers are insisting on paying the new reduced GST rate and builders are exploring options on how to deal with this issue as they have to claim ITC.

Lakshmi Kumaran & Sridharan Attorneys Partner Kapil Sharma said, "The biggest challenge faced by developers all across India is to take a pricing decision with respect to on-going projects... The perception in the mind of buyer is that effective rate of tax has reduced from 12 per cent to 5 per cent and property has become cheaper."
Mohan added, "The changes in taxation for the real estate sector has added another dimension in the buyers psychology, compelling the developers to lower the taxes from 12 per cent to 5 per cent, even if a developer decides to continue with 12 per cent tax regime eyeing the benefit of input tax credit."