Govt low­ers GST on af­ford­able and low-cost hous­ing units

HT Estates - - FRONT PAGE - Ash­wini Ku­mar Sharma ash­

In its 25th meet­ing, held on 18 Jan­uary2018, the Good­sandSer­vice Tax (GST) Coun­cil rec­om­mended ra­tio­nal­iza­tion of GST rates on var­i­ous goods and ser­vices. The list in­cluded af­ford­able and low-cost hous­ing. The coun­cil’s rec­om­men­da­tions were ac­cepted and in­cluded in the of­fi­cial gazette on 25 Jan­uary 2018. NowGST­would­becharge­dat8% on the to­tal value of un­der-con­struc­tion prop­er­ties, which wouldbe4per­cent­age points less than the ear­lier ef­fec­tive rate of 12%. Here is how the new GST rate will im­pact prop­erty prices.


For tax pur­poses, the process of buy­ing an un­der-con­struc­tion prop­erty was seen as buy­ing a ser­vice from a builder. Ear­lier, this at­tracted ser­vice tax. Now GST has re­placed ser­vice tax in th­ese trans­ac­tions. How­ever, there are other goods and ser­vices that con­tinue to at­tract taxes in ad­di­tion to the GST.

In the cur­rent tax regime, GST is not trig­gered if buy­ers pur­chase a com­pletely built prop­erty. How­ever, if an un­der-con­struc­tion prop­erty is bought, the trans­ac­tion will at­tract GST—at the rate of 18% on two-thirds of the value of the un­der-con­struc­tion prop­erty.

sOne-third of the value is con- sidered to be cost of land and thus not con­sid­ered for GST. There­fore, the ef­fec­tive rate of GST on un­der-con­struc­tion res­i­den­tial or com­mer­cial prop­er­ties is 12% with full in­put tax credit (ITC).

After buy­ing a prop­erty, the buyer has to reg­is­ter it by pay­ing stamp duty and reg­is­tra­tion fee—which are in ad­di­tion to the GST. Stamp duty is levied by re­spec­tive state gov­ern­ments and usu­ally varies be­tween 5% and 8% across the coun­try. This means that GST and th­ese other fees con­sti­tute about 20% of a prop­erty’s value.

Home­buy­ers as well as de­vel­op­ers have been ask­ing the govern­ment to re­duce the GST on res­i­den­tial prop­er­ties.

Re­spond­ing to th­ese re­quests and based on the GST Coun­cil’s rec­om­men­da­tions, now a con­ces­sional rate of 12% will be applicable, in­stead of 18%, on the two-third value of un­der-con­struc­tion prop­er­ties in the low­cost and mid­dle-in­come group cat­e­gories.

Specif­i­cally, th­ese ben­e­fits have been ex­tend to houses con­structed or ac­quired un­der the Credit Linked Sub­sidy Scheme for Eco­nom­i­cally Weaker Sec­tions ( EWS); lower- in­come group ( LIG), mid­dle in­come group- 1 ( MlG- 1) and mid­dle in­come group-2 (MlG-2) un­der the Hous­ing for All (Ur­ban) Mis­sion or Prad­han Mantri Awas Yo­jana (Ur­ban) and low-cost houses up to a car­pet area of 60 square me­tres per house in a hous­ing project that has been given in­fras­truc­ture sta­tus, as pro­posed by Min­istry of Hous­ing and Ur­ban Af­fairs.

The new GST rate on th­ese houses would be 12%, with onethird abut­ment for land cost; re­sult­ing in an ef­fec­tive rate of 8%.

Real es­tate de­vel­op­ers’ as­so­ci­a­tion, the Con­fed­er­a­tion of Real Es­tate De­vel­op­ers As­so­ci­a­tion of In­dia (Credai), said in a state­ment that the “de­ci­sion will give a boost to pro­vid­ing af­ford­able hous­ing to peo­ple of In­dia un­der Hous­ing for All, Prad­hanMantri AwasYo­janaan­dother­such­pro­grammes.” Alow­erGSTratewill fur­ther boost the af­ford­able hous­ing seg­ment. “From the sec­tor’s per­spec­tive, there’s a huge short­age of hous­ing and a lower GST rate will re­duce trans­ac­tion costs for buy­ing un­der-con­struc­tion real es­tate, which was earl i er taxed at ( more than) 17%—12% GST plus 5% or more for stam­p­dutyan­dreg­is­tra­tion,” said Ab­hishek Lodha, man­ag­ing di­rec­tor, Lodha Group.

Given that mid and lux­ury hous­ing seg­ments have­been­wit­ness­ing a lull for the last few years, af­ford­able hous­ing is the seg­ment where de­vel­op­ers see a lot of de­mand com­ing from.

Their op­ti­mism is backed by sev­eral in­dus­try re­ports, ac­cord­ing to which, while the num­ber of over­all projects launched in the sec­tor have re­duced sig­nif­i­cantly in last few years, there has been asurge in projects that of­fer houses up to Rs50 lakh last year.


Buy­ing an un­der­con­struc­tion prop­erty will at­tract GST

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