Decisions taken by the GST Council in the 34th meeting held on 19th March, 2019 regarding GST rate on real estate sector

GST Council in the 34th meeting held on 19th March, 2019 at New Delhi discussed the operational details for implementation of the recommendations made by the council in its 33rd meeting for lower effective GST rate of 1% in case of affordable houses and 5% on construction of houses other than affordable house. The council decided the modalities of the transition as follows.

Option in respect of ongoing projects:

The promoters shall be given a one -time option to continue to pay tax at the old rates (effective rate of 8% or 12% with ITC) on ongoing projects (buildings where construction and actual booking have both started before 01.04.2019) which have not been completed by 31.03.2019.

The option shall be exercised once within a prescribed time frame and where the option is not exercised within the prescribed time limit, new rates shall apply.

New tax rates:

The new tax rates which shall be applicable to new projects or ongoing projects which have exercised the above option to pay tax in the new regime are as follows:

• New rate of 1% without input tax credit (ITC) on construction of affordable houses shall be available for,

• (a) all houses which meet the definition of affordable houses as decided by GSTC (area 60 sqm in metros / 90 sqm in non- metros and value upto RS. 45 lakhs), and

• affordable houses being constructed in ongoing projects under the existing central and state housing schemes presently eligible for concessional rate of 8% GST (after 1/3rd land abatement).

• New rate of 5% without input tax creditshall be applicable on construction of,-

• all houses other than affordable houses in ongoing projects whether booked prior to or after 01.04.2019. In case of houses booked prior to 01.04.2019, new rate shall be available on instalments payable on or after 01.04.2019.

• all houses other than affordable houses in new projects.

• commercial apartments such as shops, offices etc. in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.

Conditions for the new tax rates:

The new tax rates of 1% (on construction of affordable) and 5% (on other than affordable houses) shall be available subject to following conditions:

• Input tax credit shall not be available

• 80% of inputs and input services (other than capital goods, TDR/ JDA, FSI, long term lease (premiums)) shall be purchased from registered persons. On shortfall of purchases from 80%, tax shall be paid by the builder @ 18% on RCM basis. However, Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates.

Transition for ongoing projects opting for the new tax rate:

Ongoing projects (buildings where construction and booking both had started before 01.04.2019) and have not been completed by 31.03.2019 opting for new tax rates shall transition the ITC as per the prescribed method.

The transition formula approved by the GST Council, for residential projects (refer to para 4(ii)) extrapolates ITC taken for percentage completion of construction as on 01.04.2019 to arrive at ITC for the entire project. Then based on percentage booking of flats and percentage invoicing, ITC eligibility is determined. Thus, transition would thus be on pro-rata basis based on a simple formula such that credit in proportion to booking of the flat and invoicing done for the booked flat is available subject to a few safeguards.

For a mixed project transition shall also allow ITC on pro-rata basis in proportion to carpet area of the commercial portion in the ongoing projects (on which tax will be payable @ 12% with ITC even after 1.4.2019) to the total carpet area of the project.

Treatment of TDR/ FSI and Long term lease for projects commencing after 01.04.2019

The following treatment shall apply to TDR/ FSI and Long term lease for projects commencing after 01.04.2019:

• Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them. Exemption of TDR, FSI, long term lease (premium) shall be withdrawn in case of flats sold after issue of completion certificate, but such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses. This will achieve a fair degree of taxation parity between under construction and ready to move property.

• The liability to pay tax on TDR, FSI, long term lease (premium) shall be shifted from land owner to builder underthe reverse charge mechanism (RCM).

• The date on which builder shall be liable to pay tax on TDR, FSI, long term lease (premium) of land under RCM in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate.

• The liability of builder to pay tax on construction of houses given to land owner in a JDA is also being shifted to the date of completion. Decisions from para 7.1 to 7.4 are expected to address the problem of cash flow in the sector.

Amendment to ITC rules:

ITC rules shall be amended to bring greater clarity on monthly and final determination of ITC and reversal thereof in real estate projects. The change would clearly provide procedure for availing input tax credit in relation to commercial units as such units would continue to be eligible for input tax credit in a mixed project.

The decisions of the GST Council have been presented in this note in simple language for easy understanding. The same would be given effect to through Gazette notifications/ circulars which alone shall have force of law.

Last Date for Filing of Annual Return in GST for the year 2017-18 extended up to 30th June, 2019

The GST law mandates filing of annual return in FORM GSTR -9 and FORM GSTR-9A. Vide Order No 3/2018-Central Tax, dated 31.12.18, the last date for filing the Annual Return for the Financial Year 2017-18 has been extended to 30th June 2019.

It is being informed to the trade and industry that the form is now available on the common portal for filing and taxpayers are requested to file their returns at the earliest.

Taxpayers may please exercise caution while filing this return as facility to revise the FORM GSTR -9 and FORM GSTR-9A is not available.

GST Revenue Collections

Considering present trend in the Monthly Collection of GST revenue, the changes in Revised Estimates vis-à-vis Budget Estimates for the FY 2018-19 are as under:

Goods and Services Tax (GST) (in Rs. Crore)	Budget 2018-2019	Revised 2018-2019
CGST	6,03,900	5,03,900
IGST	50,000	50,000
GST Compensation Cess	90,000	90,000
Total	7,43,900	6,43,900

It is further submitted that the Month-Wise Gross Collection of Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Integrated Goods and Services Tax (IGST) and Cess for FY 2017-18 and FY 2018-19 are as under:

Month	GST collection (in Rs. Crore)
	2017-18	2018-19
April	-	1,03,459
May	-	94,016
June	-	95,610
July	-	96,483
August	95,633	93,960
September	94,064	94,442
October	93,333	1,00,710
November	83,780	97,637
December	84,314	94,726
January	89,825	1,02,503
February	85,962	-
March	92,167	-
Average	89,885	97,555

In view of the above facts, it is clear that the GST collection in the current FY (2018-19) has been showing improvement compared to last FY (2017-18). The average gross collection of GST in the Current FY 2018-19 is Rs. 97,555 crore (till January’19) as compared to last year average collection of Rs. 89,885 crore.

New Return Filing System of GSTN

GSTN will focus, amongst others, on the development of new return filing, further improving the user interface, and Business Intelligence and Analytics. Improvement in User Interface on the basis of feedback is a continuous process. Few important initiatives/improvements made for better User Experience are:

• Questionnaire for filing GSTR-3B to avoid errors by taxpayers.
• Option to generate pre-populated Challan by the system to avoid depositing Cash in wrong Head by the taxpayers.
• Introduction of one click Nil return filing.
• Suggested utilisation of ITC informed to the taxpayer for discharging tax liability.
• Contextual help for GST transactions like Registration, Returns, Payment, etc.

GSTN has started work on BI & Analytics. Different scenarios of BI have been identified on which work is going on such as Persona based Analysis, Predictive Analysis, Fraud/Anomaly Detection, Statistical Scoring, 360-degree view of taxpayers, Circular Trading & Network Analysis, etc. Further, GSTN shares data with tax authorities on the following:

• Mis-match between figures reported in GSTR-1 & GSTR-3B.
• Mis-match between figures reported GSTR-3B and that computed by the system in GSTR-2A.
• Taxpayers who have generated e-way bill but not filed tax returns

Comparison of GSTR-1 & GSTR-3B for liability analysis, GSTR-2A & GSTR-3B for comparison of ITC being claimed by taxpayers, and analysis regarding taxpayers who have generated e-way bill but not filed tax returns is being done and the reports generated are shared with tax authorities for taking appropriate action.

CBDT identifies non-filers through Non-filers Monitoring System (NMS) by using Data Analytics and request the Non-filers to assess their tax liability for AY 2018-19 and file the Income Tax Returns (ITR) or submit online response within 21 days

The Non-filers Monitoring System (NMS) aims to identify and monitor persons who enter into high value transactions and have potential tax liabilities but have still not filed their tax returns. Analysis was carried-out to identify non-filers about whom specific information was available in the database of the Income Tax Department. The sources of information include Statement of Financial Transactions (SFT), Tax Deduction at Source (TDS), Tax Collection at Source (TCS), information about foreign remittances, exports and imports data etc. 

Data analysis has identified several potential non-filers who have carried-out high value transactions in Financial Year 2017-18 but have still not filed Income Tax Return for Assessment Year 2018-19 (relating to FY 2017-18). 

The Department has enabled e-verification of these NMS cases to reduce the compliance cost for taxpayers by soliciting their response online. It is reiterated that there is no need to visit any Income Tax office for submitting response, as the entire process is to be completed online. Taxpayers can access information related to their case from the ‘Compliance portal’ which is accessible through the e-filing Portal of the Department at https://incometaxindiaefiling.gov.in. The PAN holder should submit the response electronically on the Compliance Portal and keep a printout of the submitted response for record purposes. User Guide and FAQs are provided under the “Resources” Menu on Compliance Portal. 

Non-filers are requested to assess their tax liability for AY 2018-19 and file the Income Tax Returns (ITR) or submit online response within 21 days. If the explanation offered is found to be satisfactory, matters will be closed online. However, in cases where no return is filed or no response is received, initiation of proceedings under the Income-tax Act, 1961 will be considered.

Central Board of Direct Taxes (CBDT) clarifies regarding issue of Prosecution Notices

The Central Board of Direct Taxes (CBDT) has stated that certain news items that appeared in a section of media regarding enmasse issue of prosecution notices to small companies for TDS default are completely misleading and full of factual inaccuracies. CBDT clarified that Mumbai Income Tax TDS office has issued prosecution Show Cause Notices only in a limited number of big cases where more than Rs. 5 lakh of tax was collected as TDS from employees etc and yet the same was not deposited with the Income Tax Department in time.

CBDT said that some defaulter companies and vested interests are deliberately misleading the media to thwart action against themselves. Having deducted tax from employees and other taxpayers and not depositing the same in time in the Government Treasury is an offence punishable under the law. It also affects the interest of the employees from whose salary the tax has been deducted by the unscrupulous employers who have not deposited the same in time in the Government Treasury. If the TDS is not deposited in time, the employee would be ineligible for claiming credit of the tax deducted when he files his own return.

CBDT stated that in last one month, only in 50 big cases prosecution notices have been issued by Mumbai IT TDS office. Out of these, in 80% of the cases the TDS tax default is above Rs. 10 lakh and in 10 % cases, TDS default is between Rs. 5 to Rs.10 lakh. In the remaining 10% cases, TDS default is of more than Rs. 1 crore as detected in the survey. Prosecutions have also recently been launched against 4 big business houses where more than Rs 50 Crore of tax was collected by them from the tax payers and yet not deposited with the Government in time. But such legal and rightful action is being unfortunately projected in the media by the vested interests as if the Department is going overboard to harass small employers. 

It would be pertinent to note that in a country of 130 Crore people where around 6 Crore returns are filed every year, only a total of 1400 prosecutions have been filed so far for various offences under the Income Tax Act during this financial year. This, by any stretch of imagination, cannot be termed as mass harassment by the income tax department. Therefore, to say that prosecution notices enmasse have been sent to taxpayers for minor defaults is completely incorrect and misleading, the CBDT added.

Cabinet approves expenditure sanction for Integrated E-filing and Centralized Processing Centre 2.0 Project

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval to expenditure sanction of Rs.4,241.97crore for Integrated E-filing &Centralized Processing Center 2.0 Project of the Income Tax Department.

The Union Cabinet also approved the expenditure sanction for the consolidated cost of Rs.1,482.44 crore of the existing CPC-ITR 1.0 project upto FY 2018-19.

The broad objectives of this project are listed as under:

a. Faster and accurate outcomes for taxpayer.

b. First time right approach,

c. Enhancing user experience at all stages.

d. Improving taxpayer awareness and education through continuous engagement.

e. Promoting voluntary tax compliance.

f. Managing outstanding demand.

This approval has significant benefits for the Department and taxpayers through various functionalities such as pre-filling of ITR and acceptance by taxpayer as a means to improve accuracy and to reduce refund/processing turnaround time drastically, facilitation to taxpayers in resolving outstanding tax demands; integrated contact centers for taxpayer assistance and tax payer outreach program through digital media and employer/partner accreditation program to bring significant enhancement in services to taxpayers.

The decision will ensure horizontal equity by processing returns filed by all categories of taxpayers across the country in a consistent, uniform, rule driven, identity blind manner. This will assure fairness in tax treatment to every taxpayer irrespective of their status.

By faster processing of returns and issue of refunds to the taxpayer's bank account directly without any interface with the Department, by adhering to international best practices and standards (ISO certification) and by providing processing status updates and speedy communication using mobile app, email, SMS and on the Department website, the decision will ensure transparency and accountability.

The proposal ensures the continuation of the Department's goal towards business transformation through technology. The E-filing and CPC projects have enabled end to end automation of all processes within the Department using various innovative methods to provide taxpayer services and to promote voluntary compliance.