Summary of Key Decisions from the 34th GST Council Meeting

The 34th GST Council meeting, held virtually, focused on approving the new tax structure for housing projects, including transitional rules for existing constructions. Key decisions allowed builders to choose between old rates with ITC or new reduced rates without ITC, with new rates becoming mandatory from April 1, 2019. The council also addressed anticipated challenges with rate changes, the implementation of new GST return forms, and reviewed fiscal year 2018-19 revenue performance.

📖 3 min read read🏷️ GST Council Meetings, Housing Sector GST, GST Returns

The 34th Goods and Services Tax (GST) Council convened virtually on March 19, 2019, with Shri Arun Jaitley chairing the session. The primary purpose of this meeting was to review and approve circulars and notifications prepared by the rate fitment and legal committees. These documents pertained to the recently announced GST rate reductions for housing, initially declared during the 33rd GST Council Meeting on February 24, 2019. For a comprehensive overview of the 33rd GST Council meeting's key changes and implications, refer to this article.

As anticipated for a video conference, the meeting's agenda was concise. Strict adherence to the code of conduct ensured no new schemes or additional rate reductions were introduced. Revenue Secretary Ajay Bhushan Pandey later informed the press that the next GST Council meeting would likely occur after the General Elections concluded in May 2019. The discussions predominantly focused on applying new tax rates to housing projects currently under construction and establishing transition rules for existing projects moving from older to newer rates. It was also noted that businesses would experience an increased volume of return submissions in April due to the financial year-end, making further rate cuts during this period unlikely.

Key Outcomes of the 34th GST Council Meeting

The GST Council endorsed a transition strategy for applying the revised tax framework to residential units. New projects initiated from April 1st are subject to these new GST rates. Builders of ongoing housing projects, with construction concluding by March 31, 2019, were given two choices:

Option 1: Apply the previous GST rate of 12% (or 8% for affordable housing). Under this option, input tax credit (ITC) benefits were available and could be transferred to purchasers.
Option 2: Accept a GST rate of 5% (or 1% for affordable housing, as stipulated by GST regulations). In this scenario, builders would not be eligible for ITC on materials acquired for construction.

Builders selecting the second option were required to reverse any accumulated ITC on their unsold inventory of under-construction properties, following a proportion specified in upcoming rules, within six months. The reduced rates of 5% (and 1% for affordable housing) are applicable to residential properties still under construction post-March 31, 2019, or any new developments commenced after April 1, 2019. For these projects, builders cannot claim ITC on procurements.

Furthermore, it was mandated that at least 80% of materials must be sourced from registered dealers. Also, up to 15% of commercial space within a project would be classified as residential property for GST calculation purposes. For additional information, refer to the official press release here.

Anticipated Outcomes from the GST Council Meeting

Notifications Regarding Housing Rate Reductions

The GST Council had previously lowered rates for affordable under-construction housing from 8% to 1% and for non-affordable housing from 12% to 5%. These reductions are contingent on builders or developers not claiming input tax credit (ITC). GST professionals have argued that this condition might significantly increase the cost of under-construction apartments unless the GST Council implements balancing measures. Additionally, numerous builder associations have urged for reduced GST rates on essential materials like cement and steel, deeming it crucial for actual price decreases.

One significant challenge arising from these rate adjustments is establishing a clear transition date for the existing under-construction properties. Payments for such properties are typically made in installments, tied to construction progress. This could create confusion if some payments precede the effective date of the new rates while others occur afterward. The drafted notifications are expected to address these transitional complexities.

GST experts generally agree that the payment date could serve as the basis for determining the transition. While the reduced rates were announced for April 1, 2019, the effective transition date might be set to February 24, 2019. For example, a buyer who issued a check before February 24, 2019, might still be subject to the older rates. Consequently, this meeting was tasked with resolving the practical application of these transitional clauses for the aforementioned rate cuts. The council also aimed to re-emphasize the relevance of anti-profiteering clauses, ensuring that consumers benefit from the rate reductions.

Developing Regulations for the New GST Return System

The frameworks for the three primary GST return forms—SAHAJ, SUGAM, and Normal (for both monthly and quarterly filings)—were recently made public on the GST portal. Additionally, the new Section 43A of the CGST (Amendment) Act, effective April 1, 2019, established the groundwork for a revised return filing system. Taxpayers nationwide are anticipating the formal notification of rules, which will provide a clear understanding of the procedures for this new system, scheduled to be implemented from July 1, 2019.

A delay in issuing these rules could cause confusion regarding the new GST return process. Currently, input tax credit (ITC) claims are provisionally accepted by authorities. While earlier communications from the GST Council indicated a six-month period for taxpayers to continue provisional credit claims, a formal notification on this matter is not expected immediately. Nevertheless, the GST Council might begin discussions on finalizing and notifying these rules during the meeting.

Fiscal Year 2018-19 Revenue Collections

During this meeting, the GST Council was expected to analyze previous GST revenue performance. Furthermore, discussions would likely include formulating a strategic plan aimed at achieving increased revenue growth in the future.

Frequently Asked Questions

What is the Goods and Services Tax (GST) in India?

The Goods and Services Tax (GST) is an indirect tax used in India on the supply of goods and services. It is a comprehensive, multi-stage, destination-based tax that replaced many indirect taxes previously levied by the central and state governments.

How does Input Tax Credit (ITC) work under the GST regime?

Input Tax Credit (ITC) allows businesses to reduce the tax they pay on their output by the tax they have already paid on their inputs. This mechanism helps avoid the cascading effect of taxes, ensuring that tax is levied only on the value added at each stage of the supply chain.

What are the different types of GST returns filed in India?

In India, various GST returns are filed based on the taxpayer's category and turnover, including GSTR-1 (details of outward supplies), GSTR-3B (summary of outward supplies and ITC claims), and GSTR-9 (annual return). Specific forms like SAHAJ and SUGAM are simplified returns for certain categories of taxpayers.

Can small businesses opt for a simplified GST scheme?

Yes, small businesses in India can opt for the GST Composition Scheme, which offers a simpler and easier way to comply with GST formalities. Businesses under this scheme pay a fixed percentage of their turnover as tax and have fewer compliance requirements.

What is the GST Council's role in India's tax system?

The GST Council is the governing body for GST in India, chaired by the Union Finance Minister. Its role includes making recommendations to the Union and State Governments on issues related to GST, such as tax rates, exemptions, thresholds, and administrative procedures, ensuring a harmonized indirect tax regime across the country.