5% GST on Unsold Units at Occupancy: A Harsh Blow to Builders
Goa Chamber of Commerce and Industry suggests changes in GST levy on real estate sector, citing harsh impact on builders with unsold inventory
GstReal EstateGoaInput Tax CreditUnsold InventoryReal EstateSep 24, 2024
A memorandum presented by GCCI president Shrinivas Dempo to the Chief Minister Pramod Sawant, who is also the convener of the GOM on real estate, states that currently there is a GST of 5 per cent for under-construction residential units and 1 per cent for affordable housing, but without input tax credit (ITC).
No GST is levied on completed units even though the GST on cement and steel is 28 per cent and 18 per cent respectively. The tax outgo of real estate developers has spiked due to a rise in the commodity prices. Developers are not able to claim input tax credits which leads to an escalation in construction costs. Further, it also negates the purpose of GST which was to remove cascading impact of taxes.
GCCI has said that 5 per cent GST on unsold units at occupancy is harsh on builders if they have unsold inventory. Asking for some form of installments or deferred payment, GCCI said, “Ideally the GST at occupancy must be linked to the sale or an upper limit of two years from occupancy. Unsold inventory itself brings a lot of cash flow issues to the builders and asking them to pay GST at the time of receipt of OC is an added difficulty.”
The industry body has also asked for hotels, home stays and warehousing companies to be eligible for input tax credit on construction items. “The building and fittings (immoveable in nature) is the main revenue generating asset to the hotel industry. To ensure seamless credit of GST and to alleviate the financial crunch of hotel builders, the government should rethink its policy towards input tax credit on construction services used by the said industries,” said GCCI.
The memorandum points out to ambiguity in the GST on joint development rights cases on plots. “Whether plots come under notifications 3/ 2019, 4/2019 etc is the issue. A clarification is needed on development rights, viz. if it is taxable on forward charge or reverse charge basis and also on the issue of valuation of the same,” states the memorandum.
The GST Council must also clarify on long-term lease of land transactions as presently long-term lease is viewed as a separate transaction and treated akin to sale of land, it stated.
About Goa Chamber of Commerce and Industry (GCCI) The GCCI is a premier industry body in Goa that represents the interests of the business community in the state. It has been actively involved in promoting the growth and development of various industries in Goa, including real estate.
Keywords GST, Real Estate, Goa Chamber of Commerce and Industry, Input Tax Credit, Unsold Inventory
Frequently Asked Questions
What is the current GST rate for under-construction residential units?
5 per cent
Why is the 5 per cent GST on unsold units at occupancy harsh on builders?
Because it adds to the cash flow issues of builders who already have unsold inventory
What has GCCI asked for regarding input tax credit on construction items?
GCCI has asked for hotels, home stays and warehousing companies to be eligible for input tax credit on construction items
What is the ambiguity in GST on joint development rights cases on plots?
The ambiguity is regarding whether plots come under notifications 3/ 2019, 4/2019 etc and the issue of valuation of the same
What has GCCI suggested regarding long-term lease of land transactions?
GCCI has suggested that the GST Council must clarify on long-term lease of land transactions as presently long-term lease is viewed as a separate transaction and treated akin to sale of land
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