Economy

GST on under-construction homes slashed to 5%

Our Bureau New Delhi | Updated on February 25, 2019 Published on February 24, 2019

Exporters say many were not aware that refund of input duties under I-GST would be much higher.   -  Getty Images/iStockphoto

Levy on affordable houses cut to 1% from 8%; definition of affordable housing changed

In a boost to the housing sector, the Goods and Services (GST) Council on Sunday decided to recommend lower GST levy on under-construction homes, including in the affordable segment. The new rates will come into effect on April 1.

Under the new structure, normal under-construction houses will attract GST at 5 per cent against the present effective rate of 12 per cent. Similarly, the levy on affordable homes will be 1 per cent against 8 per cent, now. Both these levies will be without Input Tax Credit.

Also, completed flats but without the completion certificate will come under the GST regime.

Transition rules

“Transition rules need to be drafted carefully. The Law Committee will do that before March 10, so that it can be approved by the next meeting of the GST Council, which will be through video conferencing,” Finance Minister Arun Jaitley, who is also the GST Council Chairman, told reporters here.

He expressed hope that the lower levy will give a boost to ‘housing for all’.

The GST Council also decided to re-define a affordable home. By the new definition, it will be a house/flat of carpet area up to 90 sq m in non-metropolitan cities/towns, and 60 sq m in metropolitan cities having value up to ₹45 lakh (for both).

Metropolitan cities include Bengaluru, Chennai, Delhi-NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region). Both the conditions need to be fulfilled for the affordable home tag.

Bid to avoid cash

Jaitley said that to prevent a slip back to the cash system, developers would be encouraged to maximise input purchases from GST-registered dealers.

“It could be 80 per cent or more,” he said, adding that the final number would be proposed by a sub-panel of the Council.

Shishir Baijal, CMD of Knight Frank India, said the GST rate-cut, coupled with incentives proposed in the Budget and the repo rate reduction by the RBI, completes the sops for the residential real-estate market. “...the government has taken all steps to create demand and boost sales,” he said.

However, Pratik Jain, Partner at PwC India, said that developers would need to raise the base price to recover the loss of input credit.

Also, “it was mentioned that the new rates are likely to come with a condition that majority of purchases would need to be from GST-registered vendors. Therefore, monitoring the compliant vendor ecosystem would be critical for industry,” he said.

Published on February 24, 2019
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