CBIC, i.e. the Central Board of Indirect Taxes and Customs issued a notification recently and gave the real estate developers a one-time option to choose either of the two taxes.

The board also said that all the real estate companies have to decide about GST rate with the input tax credit, failing which they will be deemed to have migrated to new tax rates they want to continue with that too by 10th May. The developers have to confirm the same to their respective jurisdictional officers.

The Goods and Service Tax Council gave an option to the real estate firm to either opt for old rates of 12 percent for residential and 8 per cent affordable housing along with input tax credit (ITC) benefits or the new tax rates of 5 percent for residential units and 1 percent for affordable housing without the benefit of adjusting the credit on inputs used during construction.

CBIC said that provided that in case of an ongoing project, the registered person shall exercise one time option … to pay central tax on construction of apartments in a project at the rates as specified …. by the 10th of May, 2019.

The realtors will automatically fall under the new GST rate of 5 percent and 1 percent with effect from April 1, 2019, and will not be entitled to avail tax credit on inputs in case they fail to communicate their decision to the respective authority.

The CBIC also issued a separate notification and said that the real estate companies that will be switching to the new rates to prepare their books of accounts with regard to ITC and repay the over-used credit, if any, to the government in 24 installments.

While elaborating the provision, AMRG & Associates Partner Rajat Mohan said that the developers choosing for the lower rate of taxes with effect from April 1 will have to recalculate the eligible tax credit since the inception of GST based on the proportion of residential to commercial carpet area, sold to unsold units and invoiced to un-invoiced amount.

He further said that depending upon the factual data if tax credit has been availed beyond permissible proportion, then such excess needs to pay back to tax authorities. In some cases, such tax payment would be magnanimous, especially where the project is nearing completion, but unsold units lying in inventory are high. This will have a high tax risk on real estate sector and many may experience the worst cash flow position since the inception of GST.

The CBIC also asked developers to maintain project wise account of inward supplies from registered and unregistered supplier.

Rajat further said that GST mandated a state-wise registration. However, now taxpayers in the real estate sector are liable to produce project-wise break-up of procurements and outward supplies in order to re-calculate admissible tax credits. This will burden a taxpayer with multiple tax records to be updated on regular basis, moving away from ‘Ease of doing business.