New GST Rates And Rules – Its Implications On Housing Market

New GST Rates And Rules
New  GST  Rates  And  Rules – Its  Implications  On  Housing  Market

In  the  midst  of  the  code  of  conduct  of  general  elections, the  Election  Commission  has  given  its  approval  for  holding  the  GST  Council  meeting  on  March 19. The  nod  from  the  Election  Commission  (EC)  was  required  as  the  model  code  of  conduct  has  come  into  force  following  the  announcement  of  election  dates  for  2019  Lok  Sabha  polls  by  the  EC  of  India. The  Goods  and  Services  Tax  (GST)  Council  to  be  chaired  by  finance  minister  Arun  Jaitley  will  finalise  guidelines  for  the  new  GST  rates  and  rules  for  implementing  its  decision  of  lowering  the  GST  rates  for  the  ongoing  under-construction  residential  properties.

Earlier  in  its  last  meeting  on  24th  February, the  GST  Council  had  asked  the  fitment  committee  and  law  committee  to draft  the  new  rules  and  rates  for  the  transition  of  the  existing  under-construction  residential  properties  and  frame guidelines  by  March 10. With  the  framing  of  rules, the  developers  as  well  as  consumers  will  get  clarity  on  how  much will  be  the  impact  of  the  rate  cut  on  the  ongoing  residential  projects.

In  the  33rd  GST  Council  meeting, the  GST  Council  proposed  a  reduction  in  the  GST  rate  on  under-construction affordable  homes  to  01 percent  without  input  tax  credit  (ITC). It  also  reduced  the  GST  rate  on  under-construction residential  properties  of  the  normal  category  to  05  percent  without  ITC.

The  GST  is  currently  levied  at  12 percent  (effective)  with  ITC   for  normal  category  and  08 percent  with  ITC  in  the case  of  affordable  housing  projects  on  payments  made  for  under-construction  residential  properties  or  ready-to-move-in  flats  where  completion  certificate  is  not  issued  at  the  time  of  sale. 

Home  buyers  will  pay  a  lower  GST  as  the  new  rules  and  rate  come  into  force  from  April 01, 2019.

Earlier, the  Government  has  doled  out  sops  in  2019  to  boost  the  housing  sector  that  has  gone  through  a  relatively tough  period  over  the  last  couple  of  years  with  the  compilation  of  huge  unsold  inventory  and  liquidity  crisis. Therefore, the  real  estate  sector, being  a  large  employment  generator  has  been  in  need  of  revitalisation.    

The  steep  reduction  in  the  GST  rate  is  being  considered  as  the  panacea  for  many  of  the  issues  facing  the  sector. The sector  has  witnessed  many  challenges  in  the  recent  past  including  the  issues  of  the  liquidity  crisis, a  slowdown  in sales, and  compliance  with  RERA, etc.

No  Input  Tax  Credit  (ITC)

So far, the ITC credit was available to the builders in the case of the under-construction flats. Since the benefit of ITC was not being passed on to home buyers by some builders, the Council decided to withdraw the benefit in its last meeting. Now, builders will not be able to claim the ITC in both cases.   

Therefore, the need for framing the guidelines was felt from the fact that the rate reduction made builders ineligible to avail ITC in the value chain, which would bring back informal cash channels to the realty sector.

Redefinition  Of  The  Affordable  Housing

The total  acquisition  cost  of  your  dream  home  may  be  cheaper  from  01 April  as  the  government  has  not  only  slashed  the  GST  rates  on  all  under-construction flats but also widened the definition of the affordable  housing segment.

In its recent policy meeting, the GST Council had decided to redefine the affordable housing segment by expanding its scope. Any house or apartment, with a carpet area of up to  90 sqm in non-metropolitan cities and  60 sqm in case of metros with the value up to Rs 45 lakhs will fall under the affordable housing category. Besides, these apartments will attract only 01 percent GST without the ITC from April 01 onwards. Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai-MMR, and Delhi-NCR (Delhi, Noida, Greater  Noida, Ghaziabad, Gurgaon, Faridabad) will fall under the list of metropolitan cities.

Earlier, the residential units with carpet area up to 30 sq meters in metros and 60 sq meters in non-metro cities were only included in the affordable housing segment.

Tax  Simplification

The decision will also help in simplifying tax structure and compliance for builders. The revised GST rate has not only reduced tax for the home buyers but also have simplified the tax structure as the process of passing on the ITC was a complex issue in the past. Now home buyers need not worry about the input tax credit and anti-profiteering authority. The decision will boost the demand for under-construction residential properties as it lowers the tax burden on home buyers.

The  Liquidity  Crisis

Lower money flow in the realty sector was also a big concern that led to the lowering of the GST rates. Therefore, the rate cut will provide a much-needed impetus to the real estate market that is facing a severe liquidity crisis. The reduced GST rates on affordable housing may improve liquidity as the move will lead to a significant rise in housing sales.
In fact, cash-strapped builders have been hoping for such kind of push in their sales volumes to help them in alleviating their liquidity issues to an extent.

Besides, the Council also has to decide on the issues of GST exemption on the transferable development rights (TDR), long-term lease (premium) and the sale or transfer of Floor Space Index (FSI). This move is expected to solve the cash flow problem for the sector.

Under-construction  Housing  Prices?

The  real  estate  sector  needed  to  be  incentivised  by  creating  a  more  positive  environment  for  the  sector  given  the inventory  pileup  and  the  slowdown  in  the  launch  of  new  projects. Going  by  the  new  GST  rates  policy, developers  will have  a  challenging  time  as  they  will  not  be  able  to  claim  the  ITC. The  elimination  of  input  tax  credit  benefit  may  hit profitability  for  the  buyers  as  the  property  prices  may  rise  due  to  the  increase  in  the  construction  cost.

The  raw  materials  used  by  the  real  estate  sector  are  cement, steel, tiles, bath  fittings, etc. that  attract  GST   at  varying rates  with  cement  taxed  at  28%  and  most  of  the  other  items  taxed  at  18%. The  denial  of  the  ITC  could  increase  the cost  of  construction  which  may  get  added  to  the  basic  price  of  the  flat. Some  builders  may  seek  to  pass  on  the  same  in the  form  of  a  base  price  increase  provided  the  same  does  not  violate  the  anti-profiteering  provisions. Therefore, a reduction  in  the  GST  rate  on  raw  materials  like  cement, steel, tiles, etc. may  help  to  overcome  this  problem  to  a  certain extent.

Most  developers  currently  have  a  considerable  number  of  unsold  stock  within  the  under-construction  housing segment. The  GST  rate  reduction  in  this  segment  will  boost  sentiments  and  help  in  clearing  around  6 lakh  unsold housing  units. As  per  the  ANAROCK  data, there  are  as  many  as  5.88  lakh  under-construction  homes  lying  unsold  in the  top  7  cities. Of  these, 34%  are  priced  below  INR 40 lakh  alone.

The  rise  in  demand  for  under-construction  housing  units  as  a  result  of  the  reduction  in  the  GST  rate  will  bring  down  the unsold  inventory. This  will  accelerate  the  sales  leading  to  higher  sales  volumes  and  consequently  greater  revenue generation.  

Therefore, it  remains  to  be  seen, in  view  of  the  oversupply  in  the  market, whether  there  will  be  a  little  price  hike  by the  builders. In fact, hiking  prices  may  result  in  a  squeezing  of  margins  for  developers. Thus, resorting  to  price  hike while  clearing  unsold  inventory  may  not  be  a  wise  option  for  them. 

Impact  On  Under-construction  Residential  Properties

Sales  of  under-construction  housing  properties  were  severely  affected  as  there  was  no  GST  on  completed  homes. At present, the  GST  rate  of  12 percent  (effective)  is  applicable  only  on  the  sale  of   under-construction  residential  units and  also  on  ready-to-move-in  apartments  where  a  completion  certificate  has  not  been  issued  at  the  time  of  sale. Sale of  ready-to-move-in  or  completed  housing  unit  does  not  attract  GST  if  it  has  received  a  completion  certificate. So, it was  being  seen  that  there  was  a  distinct  preference  for  completed  housing  units  compared  to  under-construction units.  The  prospective  home buyers  preferred  to  wait  for  the  projects  to  get  completed  as  there  is  not  GST  on  ready-to-move  apartments  having  completion  certificate.

The  lowering  of  the  GST  rates  would  now  boost  the  housing  market  by  stimulating  the  demand  for  under-construction  apartments  as  buyers  were  mostly  preferring  ready  apartments  earlier  which  did  not  attract  any  GST.

It  has  also  been  witnessed  that  the  sale  of  under-construction  housing  units  remained  slow  to  post  the implementation  of  GST  in  July  2017  owing  to  higher  GST  rates  and  lack  of  clarity  with  respect  to  ITC. Therefore, the council  reduced  the  GST  rates  on  under-construction  housing  segment  which  witnessed  subdued  sales  due  to  higher GST  rates.

The  lower  rate  of  GST  of   5 percent  on  under-construction  apartments  can  now  possibly  revive  this  market  segment and  ease  some  of  the  working  capital  pressures  of  builders.

Impact  On  Affordable  Housing  Segment

The  government  has  remained  focused  on  its  agenda  of  pushing  affordable  housing  segment  to  achieve  its  target  of Housing  For  All  by  2022. The  lowering  of  GST  rate  to  01  percent  on  affordable  homes  is  expected  to  push  demand  and  thereby  attract  more  developers  in  this  segment. Therefore, the  sales  for  under-construction  residential  properties  within  the  affordable  housing  segment  is  expected  to  rise  to  a  significant  extent.

After  the  expansion  of  the  scope  of  the  affordable  housing  up  to  INR 45  lakh  budget  for  both  metro  and non-metro  locations, more  residential  properties  will  qualify  for  this  segment. Therefore, aspiring  home  buyers  will  benefit  immensely  from  this  move  now  as  they  will  have  a  wider  and  better  range  of  options  to  choose  from.

Sales  of  housing  units  within  the  affordable  housing  segment  is  expected  to  get  a  major  boost  following  the government’s  decision  to  cut  the  GST  rates  for  under-construction  housing  projects. This  is  a  huge  relief  for  both  the home  buyers  and  the  real  estate  industry  alike  under  this  new  GST  rates  and  rules.


In  the  recent  Interim  budget, the  Government  provided  incentives  to  the  affordable  housing  segment  with  a  vision  of “Housing  For  All  by  2022”. Subsequently, it  was  followed  by  an  RBI’s  decision  to  reduce  the  repo  rate  by  25  basis  points. Moreover,  there  is  also  a  big  relief  to  the  home  buyers  under  the  new  GST  rates  and  rules  which  may  help  to  narrow  down  the  demand  mismatch  gap.

More  importantly, this  move  sets  the  stage  for  a  stronger  revival  for  the  real  estate  sector  that  was  already  showing  the  signs  of  recovery  since  last  year. The  much-awaited  reduction in  the  GST  rates  on  under-construction  residential  properties, coupled  with  the  critical  change  in  the  definition  of  affordable  homes  is  a  positive  and  welcome  step which  will  further  give  the  necessary  fillip to  the  housing  market.

Also  read: GST  Council  Cuts  Rate  To  5%  On  Under-construction  Residential  Properties

New  GST  Rates  And  Rules – Its  Implications  On  Housing  Market


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