How to become a GST consultant

What are the qualities needed to be a GST consultant? Working knowledge of GST laws should generally suffice. However, anyone consulting on GST to the real estate industry would need to know the nuances of the industry. In addition, they should also possess good Microsoft Excel skills. A series of Notifications pertaining to the real estate industry released on March 29, 2019 by the Central Board of Indirect Taxes and Customs stand as proof to the aforesaid requirements.

Everyone knew that the double impact of demonetisation and GST hit the real estate sector really hard. No one could do anything about demonetisation- it just happened. The GST Council formed a committee to have a look at how GST for the real estate sector can be simplified. The Committee had a look and submitted a report recommending very low rates ( 1%) for affordable housing and affordable rates (5%) for non-affordable housing. Not having too much of a choice before the elections, the GST Council agreed with the recommendations of the Council and notified the lower rates.

The industry was just beginning to smile but a series of lengthy Notifications on March 29 2019 implementing the recommendations has forced them to go back to their consultants and look at terms such as affordable/ non-affordable/on-going projects/ new projects/ carpet area/competent authority etc. Not only are the notifications lengthy, they are also complex. The series of notifications reaffirm a long-existing disconnect between the thoughts of the GST Council and the deeds of the bureaucrats who implement those thoughts. The former keep saying that GST is Good and Simple Tax while the latter thrive on the sentence “ subject to such restrictions and conditions as may be imposed”.

Restrictions and conditions

To illustrate how these restrictions and conditions are imposed, let us take the case of a pure-play sub-contractor who does work contract jobs and is neither a builder nor a developer. As per Notification No 3/2019-Central Tax ( Rate) dated March 29, 2019, tax rate of 12% would apply to construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of affordable residential apartments in respect of a project that commences from April 1, 2019, or an ongoing project or, where the promoter opts to pay taxes under the new scheme.

Construction services other than for affordable residential apartments would be taxed at 18%. Here are the conditions and restrictions- carpet area of the affordable residential apartment is not less than 50% of the total carpet area of all the apartments in the project. To determine whether or not an apartment is an affordable residential apartment at the time of supply of such service, value of similar apartments booked nearest to the date of signing of the contract for supply of such service shall be adopted. Finally, if as per the actual carpet area and the value of supply of the said apartments sold, only less than 50% of the apartments satisfy the definition of affordable residential apartments, this rate of tax would not be applicable. The liability to pay the differential tax i.e. 18% - 12% would be on the promoter.

The Microsoft Excel skills would come in handy when implementing Annexure 1 on Input Tax Credit attribution of Notification No 3/2019 -Central Tax (Rate). Calculation of ITC attributable would involve tabulating the number of apartments in a project, number of the residential apartments, carpet area of the residential apartments, total carpet area, value of each apartment, percentage completion, total number of flats booked prior to transition, etc.

CREDAI decision

For new projects launched after April 1, 2019, industry players do not have a choice as they have to go by the new rates of 1% and 5% for affordable housing and others respectively. It is the on-going projects that present builders and developers with a dilemma. They are poring over the fine print to find out if the old scheme or new scheme is better for on-going projects. The majority appear to feel that the old scheme scores over the new one as the complications are lesser. The new scheme has some needlessly bizarre conditions such as 80% of purchases should be from registered vendors. In order to minimise further confusion in the industry, CREDAI, Karnataka has decided on the methodology to be followed for on-going projects. CREDAI is of the opinion that the old rates may be higher but may be more cost beneficial due to the availability of input tax credit. The only exception could be high end projects in specific areas where the square foot pricing exceeds Rs 10,000/- per sq ft.

CREDAI states that they have decided that builders will continue under the old scheme for ongoing projects. The price at which the unit was sold factored the GST on cost of construction as input tax credit and hence there is really no benefit that accrues to the ongoing project due to change in the methodology. Initial assessments suggest that a reasonable rate of tax along with unrestricted availability of input tax credit works better than a lower rate of tax. This could be an useful input for the Government that comes to power to convert into an output.

(The writer is a Bengaluru-based tax expert)