GST Council cuts tax on under-construction houses to 5%

GST Council has cut tax rate on under-construction residential properties and the affordable housing projects category.
The new effective GST rate for under construction flats has been brought down from the present 12 per cent to 5 per cent. The applicable GST rate for affordable housing category is now 1 per cent compared to the present 8 per cent.

The new rates will be applicable from April 1 this year. This means that the rise in sales figures due to the fresh measure will be visible only in the next financial year.

Announcing the cuts, Union Finance Minister Arun Jaitley said, “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.”
“In both cases, builders will not be able to claim the input tax credit (ITC) which they used to get when the tax slabs of 8 per cent and 12 per cent were applicable,” he added.
To ensure that the builders don’t short change the buyers, the government has created more conditions especially for the affordable housing category.
Houses under this bracket have been divided into two categories – metro and non-metro. The determining criteria for eligibility will be cost and carpet area.
This is a departure from when builders used to charge for “super area of the houses” under which the buyer used to end up paying more than the total size of the house.
The GST Council has decided that in metro areas – Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad), Mumbai, kolkata, Chennai, Hyderabad and Bangalore, the eligibility for affordable housing would be properties worth Rs 45 lakh and 60 sq metre carpet area. In non-metro cities it would be Rs 45 lakh and 90 sq metre.
According to industry estimates in the top seven Indian cities there are almost 6 lakh under-construction homes lying unsold.
Of these almost 35 per cent are priced below Rs 40 lakh. Since the GST Council has defined affordable housing as those within Rs.45 lakh budget, more properties qualify for this ‘sweet spot’ category.