GST on Under Construction Housing Properties Cut to 5%

Levy on affordable houses cut to 1% from 8%; definition of affordable housing changed

In a boost to the housing sector, the Goods and Services (GST) Council on Sunday decided to recommend lower GST levy on under-construction homes, including in the affordable segment. The new rates will come into effect on April 1.

Under the new structure, normal under-construction houses will attract GST at 5 per cent against the present effective rate of 12 per cent. Similarly, the levy on affordable homes will be 1 per cent against 8 per cent, now. Both these levies will be without Input Tax Credit.

Also, completed flats but without the completion certificate will come under the GST regime.

Transition rules

“Transition rules need to be drafted carefully. The Law Committee will do that before March 10, so that it can be approved by the next meeting of the GST Council, which will be through video conferencing,” Finance Minister Arun Jaitley, who is also the GST Council Chairman, told reporters here.

He expressed hope that the lower levy will give a boost to ‘housing for all’.

The GST Council also decided to re-define a affordable home. By the new definition, it will be a house/flat of carpet area up to 90 sq m in non-metropolitan cities/towns, and 60 sq m in metropolitan cities having value up to ₹45 lakh (for both).

Metropolitan cities include Bengaluru, Chennai, Delhi-NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region). Both the conditions need to be fulfilled for the affordable home tag.

Bid to avoid cash

Jaitley said that to prevent a slip back to the cash system, developers would be encouraged to maximise input purchases from GST-registered dealers.

“It could be 80 per cent or more,” he said, adding that the final number would be proposed by a sub-panel of the Council.

Also, “it was mentioned that the new rates are likely to come with a condition that majority of purchases would need to be from GST-registered vendors. Therefore, monitoring the compliant vendor ecosystem would be critical for industry,” he said.

Recommendations of the 33rd GST Council Meeting Held on 24 Feb

Real estate sector is one of the largest contributors to the national GDP and provides employment opportunity to large numbers of people. “Housing for All by 2022” envisions that every citizen would have a house and the urban areas would be free of slums. There are reports of slowdown in the sector and low off-take of under-construction houses which needs to be addressed. To boost the residential segment of the real estate sector, following recommendations were made by the GST Council in its 33rd meeting held on 24 February 2019:

2. GST rate:

i.        GST shall be levied at effective GST rate of 5% without ITC on residential properties outside affordable segment;

ii.        GST shall be levied at effective GST of 1% without ITC on affordable housing properties.

3. Effective date: The new rate shall become applicable from 1st of April, 2019.

4. Definition of affordable housing shall be:-

A residential house/flat of carpet area of upto 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having value upto Rs. 45 lacs (both for metropolitan and non-metropolitan cities).

Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).

5. 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.

6. Details of the scheme shall be worked out by an officers committee and shall be approved by the GST Council in a meeting to be called specifically for this purpose.

7. Advantages of the recommendations made:

The new tax rate in principle was approved by the Council taking into consideration the following advantages:-

i.      The buyer of house gets a fair price and affordable housing gets very attractive with GST @ 1%.

ii.     Interest of the buyer/consumer gets protected; ITC benefits not being passed to them shall become a non-issue.

iii.    Cash flow problem for the sector is addressed by exemption of GST on development rights, long term lease (premium), FSI etc.

iv.   Unutilized ITC, which used to become cost at the end of the project gets removed and should lead to better pricing.

v.   Tax structure and tax compliance becomes simpler for builders.

8. GST Council decided that the issue of tax rate on lottery needs further discussion in the GoM constituted in this regard.

The decisions of the GST Council have been presented in this note in simple language for easy understanding.  The same would be given effect to through Gazette notifications/ circulars which alone shall have force of law.