Mohan Lavi

Great expectations

Mohan Lavi | Updated on February 28, 2019 Published on February 28, 2019

GST rate cut for affordable housing is welcome

After every meeting of the GST Council, taxpayers have come to expect three types of announcements — those that are made because they have been in the air for some days prior to the meeting, those that take one completely by surprise and those that are expected eagerly but are never made.

The decision taken at the 33rd meeting of the GST Council to reduce the rates of tax on certain categories of real estate transactions falls in the first category, the decision taken in an earlier meeting to leave the GST threshold limits to States fall in the second category and the decision not to remove Cement from the 28 per cent bracket can be slotted in the third category.

From April 1, 2019, houses/flats with a carpet area of 90 sqm/60sqm in metropolitan/non-metropolitan cities and costing less than ₹45 lakh would be classified as affordable housing projects and would be taxed at 1 per cent. All other residential properties under construction would be taxed at 5 per cent.

Irrespective of the category, input tax credit cannot be claimed. Intermediate tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable. The Press Note that announced the decisions taken lists out the following as the advantages for the sector — the buyer of house gets a fair price and affordable housing attracts only 1 per cent GST, interests of the buyer/consumer gets protected; ITC benefits not being passed to them shall become a non-issue, cash flow problem for the sector is addressed by exemption of GST on development rights, long term lease (premium), FSI etc, unutilised ITC, which used to become cost at the end of the project gets removed and should lead to better pricing and the tax structure and tax compliance becomes simpler for builders.

The real estate industry would be relieved that GST would not be charged on long-term lease premium, development rights etc. The GST Council’s decision could probably close many cases pending before the AAR.

Despite these benefits, major players in the real estate industry would be disappointed on losing out on input tax credit. Real estate projects involve significant inputs of goods, services and capital goods all of which would incur GST. If the artificial restriction on claiming input tax credit for works contract is removed and an accurate output-input costing and set off is done, one should not be surprised if the effective tax rate is below 5 per cent.

The GST Council should provide an option to real estate players to either charge 12 per cent and claim input tax credit or charge 5 per cent sans the credit. It is possible that denial of credit could lead some to opt for cash payments since there is no incentive to keep the transaction in the GST regime. Players in the affordable housing segment may not have such worries due to the negligible rate of tax.

Lawmakers should reconsider their tendency to focus on the carpet area of the house. To the common man, affordable housing depends on the price point at which the house is offered and he would be well aware that the carpet area of the house would also be as per the price. The industry should be left to decide the carpet area at different price points.

In the build-up to the elections, the government is keen on giving out something for everyone with an expectation that everyone gives them something back during voting time. The million-dollar question is in doing so, are they forgetting the basic formula of GST? (All output-all input= GST liability)

The writer is a chartered accountant

Published on February 28, 2019

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.