The recent announcement of the Union Finance Ministry that GST exemption is available only for properties with completion certificate is likely to hit real estate developers, a prominent consultancy firm has said.

The ministry said that buyers have to pay Goods & Services Tax on any new flat that did not come with a completion certificate.

A completion certificate is issued by local government bodies after inspectors are satisfied that the builder has stuck strictly to the building plans submitted to them.

In practice, most builders do not bother with the completion certificate either because they have made substantial deviations from the approved building plan, or because they fear that inspectors will reject their applications on flimsy grounds in anticipation of illegal gratification.

Moreover, completion certificates are not required for the sale and transfer of the property to the buyer, or for subsequent resale by the buyer.

However, with the finance ministry setting the cat among the pigeons with its GST clarification, builders will either have to get completion certificates or adjust their prices to account for the 12% GST.

Under Indian laws, all incomplete properties are subject to GST, while completed projects, including resales, are not.

Pune-based Anarock Consultants estimates that about 14% of the 6.9 lakh unsold residential properties in India’s top seven cities are technically ready-to-move-in.

“With this announcement, developers are now left with no choice but to absorb the GST charges in ready-to-move projects that have not been given completion certificates,” said Anuj Puri, chairman of Anarock Consultants.