The Goods and Services Tax (GST) Council, in its meeting scheduled for January 10, is likely to take a call on rate rationalisation for under-construction flats. The meeting may also consider raising the threshold limit for Micro, Small and Medium Enterprises (MSMEs).
On Tuesday, Prime Minister Narendra Modi expressed hope that rate for under-construction flats and threshold limit for MSMEs will be rationalised soon. The previous meeting of the GST Council, held on December 22, did deliberate on both the issues and decided to take it up at the next meeting.
Boost for real estate
At present, the GST rate for under-construction flats and ready-to-move-in flats without completion certificate is 18 per cent. However, after abatement for land value, the effective rate comes down to 12 per cent. Finally, after the input tax credit is availed by the builders, final burden on the buyer is roughly 5-6 per cent. Buyers need not pay GST on ready-to-move-in flats with completion certificates.
Under consideration are two options — levying 5 per cent without input tax credit (ITC) provided the builder establishes that he has purchased at least 80 per cent of material from a GST-registered supplier; and 12 per cent with ITC.
But, it has to be seen whether abatement on account of land prices will be available under the first option. A senior Finance Ministry official had clarified that if GST is lowered to 12 per cent, then the effective rate would be 8 per cent because of abatement on account of the cost of land.
Threshold for MSMEs
At present, any business entity with turnover of ₹20 lakh or more in a year is mandatorily required to register under GST. However, the threshold is ₹10 lakh for some hilly and North-Eastern States. Now, the Council is expected to consider recommendations given by a ministerial panel led by Minister of State for Finance Shiv Pratap Shukla.
There is a view that the threshold should be ₹75 lakh for MSMEs. If that happens, then any MSME with an annual turnover of ₹75 lakh or more will mandatorily be required to register under GST, while it is optional for those with lower turnover. Most businesses prefer to register as it helps them to get good businesses from large entities. Even today, 45 lakh GST assessees have annual turnover of less than ₹20 lakh.
The decision for lower threshold will cover over 57 lakh MSMEs registered on the Udyog Aadhaar (UA) portal, besides the unregistered ones. MSMEs are defined on the basis of the investment made. There are two sets of definitions, depending on whether the units produce goods or services. Under the goods category, the slabs are: up to ₹25 lakh – micro; ₹25 lakh to ₹5 crore – small; and ₹5-10 crore – medium. In the case of services, the slabs are: up to ₹10 lakh, ₹10 lakh to ₹2 crore and ₹2-5 crore.