With the impending Lok Sabha elections, it seems that the Government is addressing the plight of people. The Government has recently, slashed the GST rates for under-construction residential properties and affordable housing projects which has brought some relief to the home buyers to purchase a residential property at lower rates.
The Goods and Service Tax (GST) Council has slashed the current tax rate of 12% on under-construction residential properties and 8% on affordable housing projects. However, the new applicable GST rate w.e.f. 1st April, 2019, for affordable housing project shall be 1% and under-construction residential properties shall be 5%.
While announcing the slashed rates, the Union Finance Minister, Mr. Arun Jaitley stated that “The move will provide a boost to the real estate sector. The sector is burdened with a huge inventory. The cuts would make owning a home cheaper for the common man.”
However, with a view to regulate the sector which is ridden with cash transactions and black money and the wide profits margins of the builders, the Government has withdrawn the Input Tax Credit benefit available to the builders. The builders will now not be able to claim the Input Tax Credit which they were allowed with tax slabs prior to the new ones.
In addition to above new rates, the Government has furthermore created more conditions for the affordable housing projects wherein the houses have been divided in two categories, which are as follows:-
- Houses in Metro Cities(Delhi/NCR, Mumbai, Kolkata, Chennai, Hyderabad and Bangalore)- affordable housing properties shall be those of worth Rs. 45 Lakh and 60 sq. mtr carpet area
- Houses in non-metro cities- affording housing properties shall be those of worth Rs. 45 Lakh and 90 sq. mtr.
As per the estimates, currently there are 6 Lakh unsold under-construction homes, out of which 35% are priced below 40 Lakh. As the GST Council has brought houses worth 45 lakh, subject to above-mentioned carpet area, within affordable housing category, more houses will come under it and shall give relief to the common man.
In order to cater to the new rates, the transition rules shall be drawn up and taken up by the GST Council in next upcoming meeting. Initially there was backlash against the changed rates, but the real estate players are now in agreement with the GST Council’s decision and agree that this will increase the demand and sales of under-construction properties. However simultaneously, the builders worry that the move may affect the profits on the supply side due to withdrawal of input tax credit.
Senior Legal Associate
The Indian Lawyer