Published on: Feb 25, 2019 @ 02:44
In a major relief to home buyers and the real estate sector, the Goods and Services Tax (GST) Council has approved the proposal for lowering the GST rate on under-construction residential properties in both the Affordable and Non-affordable housing segments. In the 33rd GST Council meeting on Sunday, Union Finance Minister Arun Jaitley and other Council members agreed to slash the rate on under-construction housing properties to 5 per cent from the current 12 per cent. The Council has also reduced GST rate for affordable housing to 1 per cent from the existing 8 per cent.
The new revised GST rates will come into effect from April 1, 2019. Earlier in the month of January, the GST Council notified formation of a ministerial panel to study problems in the real estate sector and suggest remedial measures. The panel is headed by Gujarat Deputy Chief Minister Nitin Patel. Now, the law and fitment committee will draft the guidelines by March 10 which will be taken up in a subsequent GST Council meeting.
Currently, the GST rate is levied at 12 per cent for under-construction housing properties or ready-to-move-in flats where completion certificate has not been issued at the time of sale. However, GST is not levied on those housing properties for which completion certificate has been issued at the time of sale.
However, builders will not be able to claim input tax credit (ITC) under the new GST rates. Therefore, this will make the issue of developers not passing on the benefits of ITC to home buyers as irrelevant. Moreover, the Ministry of Finance said in a statement that unutilized ITC, which used to be added to the end cost of the project, will now be removed to make prices more reasonable.
The GST Council in its meeting today has also expanded the definition of the affordable housing segment. Now, this segment in metro cities will include those residential properties measuring a carpet area up to 60 sq meters and costing up to Rs 45 lakh. However, in the case of non-metro cities, residential properties with a carpet area of 90 sq meters and cost up to Rs 45 lakh will be considered under the affordable housing segment.
The GST Council also decided that intermediate tax on development rights, such as TDR, JDA, lease (premium), FSI shall be exempted only for such housing properties on which GST is payable. This exemption help address the problem of cash flow faced by the real estate sector.
Finance Minister Arun Jaitley said in a statement that the move would be a major step in our efforts to give ‘boom’ to the real estate sector, and make housing affordable to the middle class, neo-middle class and aspirational class. These changes should also help make tax structure and tax compliance easier for builders.