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GST Council cuts rates sharply to make room for housing growth

The GST Council approved a sharp reduction in the levy on homes under construction and raised the threshold for affordable housing that will make more purchases eligible for concessional tax, offering substantial relief to buyers ahead of the elections.

Starting April 1, homes under construction will be levied 5% GST, against 12%. For affordable homes, GST will drop to 1% from 8%.

Homes up to Rs 45 lakh and with a carpet area of up to 60 sq metres in metros and 90 sq metres in non-metro cities will be counted in the affordable segment, according to the new twin definition cleared by the council, which is expected to give a big boost to lower-income housing. The earlier limit was a uniform carpet area of up to 60 sq metres for a house in an approved affordable housing scheme. There will be no input tax credit for GST paid on materials such as cement and steel for the sector at these lower GST rates.

“In its 33rd meeting, the GST Council has accorded big relief to real estate sector,” FM Arun Jaitley tweeted. “This (rate cut) will give boost to housing for all & fulfill aspirations of neo/middle classes.”

The government said in a statement that “the buyer of house gets a fair price and affordable housing gets very attractive with GST @ 1%”.

The GST Council deferred a decision on lotteries, Jaitley said, adding the group of ministers (GoM) will meet again to discuss the proposal.

“A reduced effective rate of GST of 5%/1% is good news for the real estate industry as the 12%/8% rate was a bit of a deterrent for buyers of underconstruction properties,” said EY tax partner Abhishek Jain.

Intermediate tax on transfer of development rights (TDR), joint development agreement (JDA), lease (premium), floor space index (FSI) will be exempt from GST for such residential property on which GST is payable.

‘Simpler Tax Compliance for Builders’
The government said this will address the cash flow problems faced by the industry.

“There are reports of slowdown in the sector and low offtake of under-construction houses which needs to be addressed,” statement said.

It would also result in the cost of houses coming down, the government said.

“Unutilised ITC (input tax credit), which used to become cost at the end of the project, gets removed and should lead to better pricing. Tax structure and tax compliance becomes simpler for builders,” it said in the statement.

“Developers will need to increase the base price to recover the loss of input credit but would need to be cautious given the surge in anti-profiteering investigations for restaurants, in similar circumstances,” said Pratik Jain, partner and leader, indirect tax, PwC.

The decision was based on recommendations of a ministerial panel headed by Gujarat deputy chief minister Nitin Patel.

Those designated as metro cities are Mumbai, Bengaluru, Chennai, Hyderabad and Kolkata apart from the National Capital Region — Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad. Separately, the Reserve Bank of India had imposed a monetary limit of Rs 30 lakh for non-metros and Rs 45 lakh for metros for affordable housing loans. Builders had been seeking a lower GST rate.

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