Analysis of the 33rd GST Council Meeting Outcomes

The 33rd Goods and Services Tax (GST) Council meeting, held on February 24, 2019, in Delhi, concluded with significant decisions, particularly for the real estate sector. The meeting was initially scheduled for February 20 via video conference but was rescheduled due to disagreements among state Finance Ministers. Amid looming general elections, the council's announcements were anticipated to have political implications. Key measures were introduced to stimulate real estate sales and enhance regulation in the sector, aiming to ensure that tax benefits reach middle-class and new homebuyers. The primary agenda items included policies concerning under-construction housing and the distribution of private lotteries.

Recent GST Council Meeting Updates

47th GST Council Meeting

The 47th GST Council meeting occurred on June 28-29, 2022, in Chandigarh. Chaired by Union Finance Minister Nirmala Sitharaman, the council suggested rate revisions for increasing revenue and correcting inverted duty structures, while also streamlining the GST exemption list. Additionally, compliance relief was extended to e-commerce suppliers and taxpayers under the composition scheme. (Link to 47th GST Council meeting news)

46th GST Council Meeting

Held on December 31, 2021, in New Delhi, the 46th GST Council meeting, led by Union FM Nirmala Sitharaman, decided to postpone the proposed GST rate increase for textiles to 12%. (Link to 46th GST Council meeting news)

45th GST Council Meeting

The 45th GST Council meeting took place on September 17, 2021. Discussions included extending tax concessions for essential COVID-19 items, addressing GST compensation for states, and rectifying the inverted tax structure. (Link to 45th GST Council meeting news)

43rd GST Council Meeting

On May 28, 2021, the 43rd GST Council meeting was convened. It approved the reintroduction of the GST amnesty scheme, streamlined late fees for all taxpayers, especially small businesses, and granted an IGST exemption on the import of COVID-19 treatment equipment and relief materials until August 31, 2021. (Link to 43rd GST Council meeting news)

Key Decisions and Their Impact from the 33rd GST Council Meeting

The 32nd GST Council meeting, held on January 10, 2019, also in Delhi and chaired by then-Finance Minister Arun Jaitley, established the groundwork for the discussions at the 33rd meeting. (Link to 32nd GST Council meeting details)

Boost for Under-Construction Housing

The Finance Minister announced significant GST rate adjustments for under-construction residential properties:

• Affordable Housing: The GST rate was lowered to 1% without Input Tax Credit (ITC), a considerable reduction from the previous 8%. An earlier proposal had suggested a 3% rate.
• Redefinition of Affordable Housing: The GST law now includes a dual definition:
  • Metro Cities: Properties valued up to Rs. 45 lakhs with a carpet area of up to 60 sq.m. Metro cities include Bengaluru, Chennai, Delhi NCR (Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata, and the entire Mumbai Metropolitan Region (MMR).
  • Non-Metro Cities: Properties valued up to Rs. 45 lakhs with a carpet area of up to 90 sq.m.
• Non-Affordable Housing: The GST rate was decreased to 5% without ITC, down from the prior 12%. (Link to GST rates for the real estate sector)
• Implementation: All proposed changes were to be formally drafted by the law and fitment committee by March 10, 2019, for presentation to the GST Council. Official notifications were expected to follow council approval, with an effective date of April 1, 2019. This staggered implementation aimed to mitigate transitional challenges for builders with ongoing projects.
• GST Exemption on Development Rights: An exemption was proposed for GST on Transfer Development Rights (TDR), Joint Development Agreements (JDA), long-term leases (premium), and Floor Space Index (FSI). This intermediate tax exemption applies to residential properties where GST is already payable.

Cement Rate Cuts Excluded from Discussion

Discussions did not include any reductions in the GST rate for cement, which remains at 28%.

No Resolution on Lottery Rate Reduction

No definitive conclusion was reached regarding a potential reduction in the GST rate applicable to lotteries.

Agenda of the 33rd GST Council Meeting

The meeting's agenda encompassed several critical points:

• Determining whether to include the supply of residential properties within the Composition scheme, as previously discussed. A Group of Ministers (GoM) led by Gujarat Chief Minister Nitin Patel submitted its final report on this matter.
• Reviewing the imposition of GST on Transfer of Development Rights (TDR) and development rights in the context of Joint Development Agreements.
• Considering whether to lower GST rates on cement from 28% and 18%, a recommendation from the committee. In a prior meeting in December 2018 (details here), then-Finance Minister Arun Jaitley had dismissed further rate cuts, citing concerns about GST revenue collection, stating that such reductions would occur once revenue streams were satisfactory.
• Introducing a duty drawback-like scheme under GST for exporters.

Expectations from the GST Council Meeting

Leading up to the meeting, several key outcomes were anticipated:

• Reduction in GST for Under-Construction Homes: Proposals aimed to decrease rates for under-construction homes from 12% to 5%, and for affordable housing from 8% to 3%. In both scenarios, Input Tax Credit (ITC) would not be available. A significant challenge for builders was the unutilized ITC due to high GST on raw materials like cement, often exceeding tax liability. This created a need for GST refunds, a process that was still developing stability.
• Lowering GST Rates on Cement: The industry strongly advocated for reducing the GST rate on cement from 28% to 18%. Cement is a fundamental raw material for construction, a vital component of housing costs in India. The Cement Manufacturers Association India's repeated requests brought the issue of cement taxation to the council's attention.
• Duty Drawback-Like Scheme: Exporters currently do not receive compensation for taxes other than basic customs duty (BCD) under the GST framework, impacting their global competitiveness. GST officials confirmed that a duty drawback scheme was being developed following a request from the Directorate General of Foreign Trade (DGFT) to the Central Board of Indirect Taxes & Customs (CBIC) for such relief.