Why Some Under-Construction Houses May Cost More From April 1

The Goods and Services Tax Council may not allow real estate developers to claim credit for tax paid on inputs after April 1, a government official told BloombergQuint. This move may push up prices of under-construction properties.

For under-construction projects where 50 percent of the house has been built and the tax on inputs has been paid, the builders will be able to claim credit, or would have already availed credit where invoices have been issued before March 31, the official said requesting anonymity. But, for taxes paid on inputs for constructing the remaining 50 percent of the project where purchases of inputs have been made before March 31, but sale is made after April 1, credit will be denied, the official said. That means credit in the builders' accounts will lapse on March 31.

For residential-cum-commercial properties, input credit may be denied if they are registered as a residential project but has up to 10 percent of the project earmarked for commercial purposes, the official said, adding the proposal is recommended by those government officials who are tasked with charting a transition plan for lowering the GST rate on under-construction houses and affordable homes.

The council in its last meeting approved lowering the tax rate on under-construction properties to 5 percent from 12 percent earlier. Affordable housing projects will attract 1 percent tax. It has not changed the tax rates for commercial projects and developers can avail input tax credit on the sale of these properties. The council is scheduled to meet again on March 19 to finalise the transition plan.

“The denial of credit in cases where the services have been availed by builders before March 31, but invoices are to be generated after April 1 will add up to the cost of development, thereby increasing the price of properties for buyers,” Sohrab Bararia, associate partner at BDO India, told BloombergQuint.

But not all agree. Neeraj Sharma, director at Grant Thornton Advisory, however, said given the current market condition, builders may not increase prices, instead take a hit on their margin.

John Joseph, member of investigation division at Central Board of Indirect Taxes and Customs, said if builders increase the prices of under-construction properties after April 1, the anti-profiteering measure will be used. “The government will also keep a watch on property prices,” he told BloombergQuint in an interview.