Goods and Service Tax Council slashes tax rates on the country’s dormant yet promising real estate sector.
Real estate sector is one of the largest contributors to the nation’s GDP and opens doors to employment opportunities to a large number of citizens of the country. The recent “Housing for all by 2022” envisions that every citizen of the nation would have a house and urban areas would be free of slums. More than 2.95 crore houses are set to be constructed by 2022 to achieve the set objective.
But recent reports show a slowdown in the sector and a significant low off-take of under construction housing properties which need to be addressed.
To boost the residential segment of the real estate sector, the following recommendations were made by the Goods & Service Tax council in its 33rd meeting held yesterday.
Revised GST Rates:
1)GST shall be levied at an effective GST rate of 5% without ITC(Input Tax Credit) on residential properties outside the affordable segment.
2)GST shall be levied at effective GST of 1% without ITC on affordable housing properties.
3)These new rates shall be applicable from 1st April 2019.
Before we continue and talk about other changes proposed by the GST council, let’s look at how the council defines affordable housing properties.
Homes up to Rs 45 lakh and with a carpet area of up to 60 sq meters in metros and 90 sq meters in non-metro cities will be counted in the affordable segment.
The earlier limit was a uniform carpet area of up to 60 sq meters 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 (both for metropolitan and non-metropolitan cities).
In this situation, the metros will be Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida,
Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (the entirety of MMR i.e. Mumbai Metropolitan Region).
GST exemption on TDR/ JDA, long term lease (premium), FSI:
Intermediate tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable.
Implications of the recommendations made in 33rd GST Council Meet:
1)Affordable housing gets attractive with GST at mere 1%. The buyer of the house will get a fair price.
2)Both the interest of the buyers and consumers gets protected.
3)Cash flow problem for the sector is addressed by the exemption of GST on development rights, long term lease (premium), FSI etc.
4)Unutilized ITC (input tax credit), which used to become cost at the end of the project, gets removed. This would again lead to better pricing.
5)Tax structure and adhering to the compliance will get easier for builders.
“In its 33rd meeting, the GST Council has accorded big relief to real estate sector,” The nation’s Finance Minister Arun Jaitley tweeted.”
On or before 10th March 2019, all the changes will be drafted in a circular by the law and fitment committee and will be presented before the GST Council as recommendations.
To sensitively address the transition issues which will be likely faced by many builders who have ongoing projects, the rules will be made applicable from 1st April 2019.