GST ON HOUSING BOON TO BUYERS
Those buying the properties like buildings and flats should relax as the Goods and Services Tax (GST) on housing will lower the cost by 5 to 6%. The Finance Ministry on Saturday clarified that the Goods and Services Tax (GST) will rather lower the cost of buildings and flats and the builders are mandated to pass on the benefit to the buyers by way of reduced prices/installments.
Junking the myth that the housing prices will go up due to GST, a ministry press note said the effective rate of tax payable by the builders will be 10-12% as against 1518% prior to imposition of the GST.
It also gave the calculations in support. The breakup of the pre-GST tax on housing totals up to 15-18%, which includes 4.5% service tax, VAT 1% to 5% plus 12.5% central excise on most construction materials, VAT of 12.5 to 14.5% and also the entry tax.
In the new GST regime, ITC on VAT and central excise on the inputs get embedded in the value of properties and considering that goods constitute approximately 45% of value, the embedded ITC in case of GST is approximately 10-12%.
Moreover, the ministry said the GST is applicable only on sale of under-construction property or ready-to-move-in flats where completion certificate is not issued by the competent authority.
There is, however, no GST on the sale of buildings and ready-to-move-in flats were the sale takes place after the issue of the completion certificate.
Also, housing projects in the affordable sections such as Pradhan Mantri Awas Yojana, Jawaharlal Nehru National Urban renewal Mission, Rajiv Awas Yojana and the housing schemes of the state government attract only 8% GST. On most cases, the builders will not have to pay GST in cash in these cases since they will have enough Income Tax Credit (ITC) in their account books to pay the output GST.