In a big relief to home buyers, Union and state governments on Sunday decided to lower Goods and Services Tax (GST) on under construction flats and houses to 5% without an input tax credit from the existing 12% in a pro-consumer decision before the general elections due by April-May.
The new rule is applicable to all under-construction projects that do not fall under the affordable housing category. The Council also cuts GST rate on affordable housing projects to 1% from the current 8%. This move will certainly find favour with middle-class voters ahead of the national polls.
The new tax rates will be effective from April 1, 2019.
Currently, the Goods and Services Tax (GST) is levied at 12% on payments made for under-construction flats or ready-to-move-in houses where completion certificate is not issued at the time of sale. “The reduction of GST rates or under-construction flats and affordable housing to 5% and 1% is a revolutionary step for Indian real estate sector. This decision will play a huge role in boosting the home buyers sentiments,” Ashutosh Dhiman, Chief Technology Officer at clicbrics.com.
The Council also revised the definition of affordable housing for the purpose of availing GST benefits in both metro cities as well as non-metro cities. Homes costing up to Rs 45 lakhs and measuring 60 sq meters carpet area in metros (Delhi-NCR, Chennai, Bengaluru, Hyderabad, Mumbai-MMR and Kolkata) and 90 sq meters carpet area in non-metro cities will be put in the affordable segment
“We have adopted twin definition of affordable housing on the basis of carpet area and cost. We have expanded the definition of affordable housing so that aspiring people can buy slightly bigger (houses), so 60 sq meter carpet area in metros and 90 sq meter outside the metros which approximately translates to a 2-bedroom house in metro and a possibly 3-bedroom house in non-metros. This will come into effect from April 1, 2019,” the finance minister said.
The revisions came under the "Housing for All 2022 " scheme launched by the Narendra Modi government aims to provide every citizen a house and urban areas free from slums.
"To ensure that the real estate sector does not go back to a cash economy due to the removal of ITC, the builders will have to buy a very high percentage of goods of their inputs from GST-registered dealers. “For that back chain, a condition will be put that a very high percentage of purchases to avail of this, will have to be from registered dealers. The GoM has proposed 80 percent. Whether it is 80 percent or more, the group will reconsider it and present before the Council,” he said.
With regard to lotteries, the Goods and Services Tax Council, however, deferred a decision with Arun Jaitley saying that the Group of Ministers (GoM) will meet again to discuss the proposal.
Currently, state-run lotteries are taxed at 12%, while state-authorized ones are levied GST of 28%.