India cuts tax on off-plan homes ahead of polls
mumbai — India on Sunday announced a cut in the goods and services tax charged on sales of residential properties under construction as the government looks to stimulate the economy by driving up consumption.
The Goods and Services Tax Council, comprising state and federal finance ministers, announced that the new rate will be 5 per cent, down from 12 per cent, on all new housing projects except those that are classified as affordable housing, according to a statement from the finance ministry.
The council also decided to slash the tax rate on affordable housing projects to 1 per cent from 8 per cent, the statement said after a meeting in New Delhi on Sunday. —
dubai — Providing a big boon to NRIs and domestic home buyers, India’s Goods and Services Tax (GST) Council on Sunday slashed tax rates on under-construction housing properties to five per cent without input tax credit, from the existing 12 per cent.
The move, which was eagerly awaited by home buyers and the embattled realty sector, will also see GST rates reduced on affordable housing to 1 per cent from the current 8 per cent and expanded the scope of affordable housing to those costing up to ₹4.5 million and measuring 60sqm in metros and 90sqm in non-metro cities.
Finance Minister Arun Jaitley was quoted on Sunday as saying that the decision would certainly give boost to construction sector.
The new tax rates will come into effect from April 1, 2019. At present, GST is levied at 12 per cent on payments made for under-construction properties or ready-to-move-in flats where completion certificate has not been issued at the time of sale.
Tax and realty experts said the GST cut, recommended by the group of ministers comprising the central and state finance ministers, would draw more non-resident Indians to the real estate sector that is expected to touch $1 trillion by 2030.
Analysts said the move would give a much-needed fillip to the property sector, which has around 600,000 unsold under-construction houses in the top seven cities. However, builders will not be able to claim input tax credit under the new GST rates. GST is not levied on real estate properties for which completion certificate has been issued at the time of sale.
The GST cut would lead to reduction of home prices by as much as ₹300,000 for super builtup area of 1,000sqft. Analysts said for NRIs, it will be a major boon because they largely invest in under-construction properties as they buy it more for investment purpose and not largely for their end-use.
Anuj Puri, chairman of Anarock Property Consultants, said the move gives the beleaguered realty sector the much-needed breathing room and will certainly help it maintain some forward momentum in 2019. “Another booster shot given by the government is changing the very definition of the budget-range of affordable housing,” Puri added.
Expanding the scope of affordable housing category pricing to up to ₹4.5 million will make more properties from the premium budget fall in to the affordable segment category, and thus benefit buyers in cities like MMR where property prices are exorbitant, said Puri.
“This will certainly cause sales of housing units within this segment to rise to a significant extent. Most players currently have considerable unsold stock within this segment,” he said.
The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range — a winwin for both builder and buyers.
“Cash-strapped builders have been hoping for all and any Government interventions which can help boost their sales volumes,” Puri said.
“This GST cut will provide such a boost, at least in the short-term as more fence-sitters who had been postponing their purchase decisions now have an additional incentive to take the plunge.”
An important factor is the timing of the move.
“With the general elections closing in, builders have been worried on account of the lower sales which were invariably a byproduct of the period preceding elections,” said Puri.
“Investors generally refrain from market plays in this time, and buyers also go into waitand-watch mode as they await sops from a newly-elected government or stronger market sentiments resulting from continuity of the incumbent government. For this reason, builders also generally refrain from launching new projects in this period,” he added.