Why Amit Mitra Seeks Changes to Real Estate GST Rules – 5 Major Contentions

Why Amit Mitra Seeks Changes to Real Estate GST Rules - 5 Major Contentions

We all Know that GST Council is all set to lay the GST Rules for Real Estate pursuant to which 1st April, 2019 changes would be brought in the Industry with an effective rate cut and disallowance of Input tax credit. Amidst all this What Amit Mitra, WB Finance Minister has written to Mr Jaitley makes some sense and needs due consideration. Major Contentions are :-

A) The mechanism being proposed was highly cumbersome and mind boggling :– In his latest letter to Union Finance Minister, Arun Jaitley, Mitra has said that while the basic decision of bringing the effective rates of affordable housing and non-housing to 1 per cent and 5 per cent without input tax credit (ITC) was something everyone agreed upon, the mechanism being proposed was highly cumbersome and mind boggling.

B) Builder Have to Maintain Project Wise Accounts which will be a Big Problem for Real Estate :– Mitra said if the developer had purchased material and taken the ITC, he would be permitted to use only the percentage he had invoiced and had to reverse the rest. This needs to be done project wise though earlier accounts were not maintained project wise, he said. The net result would be that the cost of the project would increase immediately and the consumer would end up actually paying more rather than less, he added.

C) Lot of Discretion with Tax Authorities would lead to Tax terrorism :– Also, according to him, the formulae specified would leave a lot of discretion with the tax authorities and might encourage rent seeking.

In the previous meeting, held on February 24, the GST Council had slashed tax rates for under-construction flats to 5 per cent and affordable homes to 1 per cent, effective April 1.

Currently, GST is levied at 12 per cent with an ITC on payments made for under-construction property or ready-to-move-in flats where completion certificate is not issued at the time of sale. For affordable housing units, the existing tax rate is 8 per cent.

Mitra had argued in a letter ahead of the last meeting that the rates of the affordable housing should be reduced from 3 per cent proposed by GoM to 1 per cent as the effective rate of tax factoring in the ITC comes to around 1 per cent.

d) Scheme should be Made Mandatory for only New Projects on or after 1.4.2019 :- Mitra, in his latest letter, has suggested that the scheme be made mandatory only for new projects that come on or after April 1, 2019.

e) Complete Exemption for TDR :- Further, the minister has proposed that the long-term lease and transfer of development rights be completely exempt for residential real estate projects as the Council had done for industrial plots.

Tax exemption on such rights and lease has been allowed to residential apartments, till the time the completion certificate has not been obtained.

The decision to charge GST on long-term lease and tra­nsfer of development rights on land for residential apartments sold after issuance of completion certificate would increase the cost to buyer and required redressal, Mitra said.

CA Ankit Gulgulia (Jain)

CA Ankit Gulgulia (Jain) is Fellow Member of ICAI, Certified IFRS & Business Valuation from ACCA UK and is Practising Chartered Accountant with 8 Years plus of Rich Experience in Audit, GST, Income Tax, DGFT, Valuation, Strategic Advisory, Matters of FEMA, FDI, NCLT, RERA, ROC, SEBI, RBI, M&A, Fundraising, Startups etc as Founder of AGA, Chartered Accountants. AGA Works in wholesome business solutions right from scratch of Company Incorporation to Compliances all under One Roof. He also takes interest in being Virtual Chief Financial Officer (CFO) for Small and Medium Enterprises for Guiding them with All Business, Tax & Strategic Business Decision Making . To Know More, Learn here or contact us at ankitgulgulia@gmail.com

CA Ankit Gulgulia (Jain)
About CA Ankit Gulgulia (Jain) 1116 Articles
CA Ankit Gulgulia (Jain) is Fellow Member of ICAI, Certified IFRS & Business Valuation from ACCA UK and is Practising Chartered Accountant with 8 Years plus of Rich Experience in Audit, GST, Income Tax, DGFT, Valuation, Strategic Advisory, Matters of FEMA, FDI, NCLT, RERA, ROC, SEBI, RBI, M&A, Fundraising, Startups etc as Founder of AGA, Chartered Accountants. AGA Works in wholesome business solutions right from scratch of Company Incorporation to Compliances all under One Roof. He also takes interest in being Virtual Chief Financial Officer (CFO) for Small and Medium Enterprises for Guiding them with All Business, Tax & Strategic Business Decision Making . To Know More, Learn here or contact us at ankitgulgulia@gmail.com

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