Real estate firms have time till May 10 to communicate to their respective jurisdictional officers whether they want to continue with the old GST rates with input tax credit, failing which they will be deemed to have migrated to new tax rates. The GST Council had given the option to real estate companies to either opt for old rates of 12 per cent (for residential) and 8 per cent (affordable housing) with input tax credit (ITC) benefits or the new tax rates of 5 per cent for residential units and 1 per cent for affordable housing without the benefit of adjusting the credit on inputs used during construction. 

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The Central Board of Indirect Taxes and Customs (CBIC) has issued a notification giving real estate companies a one-time option to choose either of the tax rates. "Provided that in case of 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 CBIC said.

In case, realtors do not exercise the option, they will be covered under the lower tax rate of 5 per cent and 1 per cent with effect from April 1, 2019, and will not be entitled to avail tax credit on inputs.

Meanwhile, in a separate notification, the CBIC has asked the real estate companies that will be migrating 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 instalments.

Explaining the provision, AMRG & Associates Partner Rajat Mohan said builders opting for lower rate of taxes with effect from April 1 would have to recalculate 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. 

"Based on the factual data if tax credit has been availed beyond permissible proportion, then such excess needs to paid back to tax authorities. In quite a few 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 worst cash flow position since inception of GST," Mohan said.  

Further the CBIC has also asked builders to maintain project wise account of inward supplies from registered and unregistered supplier. 
 

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"GST mandated a state-wise registration. However, now taxpayers in 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'," Mohan said.