Business Standard

Effective GST for affordable homes down to 8%

- RAGHAVENDR­A KAMATH

Affordable housing got one more boost from the government as the goods and services tax (GST) Council in its meeting on January 18 had recommende­d the effective GST rate of eight per cent for houses under the Pradhan Mantri Awas Yojana (PMAY) that provides credit linked subsidy scheme (CLSS).

Currently, houses under constructi­on attract GST at the rate of 18 per cent. But with the provision of deducting one-third of the house price towards the cost of land, the effective rate comes down to 12 per cent. This will be now down by 400 basis points to eight per cent for affordable homes.

“One of the important recommenda­tions is to extend the concession­al rate of the GST of 12 per cent (effective rate of eight per cent after deducting one-third of the amount charged for the house, flat, etc. towards the cost of land or undivided share of land, as the case may be) in the housing sector to constructi­on of houses constructe­d/acquired under the credit linked subsidy scheme,” said a statement from the Central Board of Excise and Customs.

The PMAY, first launched in June 2015, provided an interest subvention of 6.5 per cent for a loan up to ~600,000 for the economical­ly weaker section ( EWS) and lower income group (LIG) till 2022.

On December 31, 2016, the Centre introduced two new middle income group (MIG) schemes under the PMAY. These provide an interest subvention of four per cent and three per cent, respective­ly, for home loans up to ~900,000 and ~1.2 million. Though the MIG schemes were initially announced only for 12 months, it has now been extended for an additional 15 months, till March 2019.

“This (lowering the GST rates) is likely to provide the much-needed fillip to the affordable housing sector as buyers will now be able to avail the interest subsidy under the scheme as well as get a lower concession­al rate of GST of eight per cent,” said Anuj Puri, chairman of Anarock Property Consultant­s.

The carpet area of houses constructe­d under the CLSS is up to 30 square metres (sq m) for EWS, 60 sq m for LIG, 120 sq m for MIG I, and 150 sq m for MIG II. The maximum annual income for eligibilit­y of beneficiar­ies under the scheme can be up to ~1.8 million.

“The proposed reduction in GST would provide relief to many homebuyers,” said Ram Walase, VBHC Value Home, promoted by ex- Citi banker Jerry Rao.

“In a way, this indirect tax benefit is uniquely targeted at a class of citizens on the basis of income criteria, which is normally a criterion for direct tax benefits only,” Walase said.

The carpet area of houses constructe­d under this component of the mission would be up to 30 sq m for EWSA, 60 sq m for LIG, 120 sq m for MIG Iand, and 150 sq m for MIG II. The maximum annual income limit for the beneficiar­ies is up to ~1.8 million.

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