GST on under-construction flats slashed

To boost demand in the real estate sector, the GST Council on February 24 slashed tax rates for under-construction flats to 5 per cent and affordable homes to 1 per cent, effective April 1.

Currently, the GST is levied at 12 per cent with input tax credit (ITC) on payments made for under-construction property or ready-to-move-in flats where completion certificate is not issued at the time of sale. For affordable housing units, the existing tax rate is 8 per cent.

Finance Minister Arun Jaitley said consumers felt that the benefits of ITC were not being passed on to them by the builders, and hence a group of ministers (GoM) was set up to suggest changes in taxation on real estate.

He said that currently GST is levied at 12 per cent on normal residential houses and 8 per cent on affordable homes after considering one-third abatement on account of land cost.

“The council has decided that after removal of ITC, the rates will be 5 per cent for normal housing properties and 1 per cent for affordable housing,” he said.

To ensure that the real estate sector does not go back to a cash economy on account of removal of ITC, Jaitley said the builders will have to purchase a “very high percentage” (which will be decided by a committee) of their inputs from GST registered dealers.

The reduction in rates will give a boost to housing for all and fulfil aspirations of the neo-middle class, he said.

The council also expanded the definition of affordable housing for the purpose of availing GST benefits to those flats costing up to Rs 45 lakh and measuring 60 sq m carpet area in metros (Delhi-NCR, Bengaluru, Chennai, Hyderabad, Mumbai-MMR and Kolkata) and 90 sq m carpet area in non-metros.

“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 m carpet area in metros and 90 sq m outside the metros, which approximate translates to a two-bedroom house in a metro and a possibly three-bedroom house in non-metros. This will come into effect from April 1,” he said.

For GST applicability on affordable housing, currently there is no valuation threshold and the calculation of carpet area varies from project to project.

With regard to those properties where construction work has already begun, Jaitley said a committee of officers will draft the transition rules and frame guidelines.

“The fitment committee and law committee by March 10 will draft those guidelines and immediately place before the GST Council, which will meet via video conference so that ministers do not have to travel to Delhi in election period,” he said.

GST is not levied on buyers of real estate properties for which completion certificate has been issued at the time of sale.

“This decision is certainly going to give a good boost to the under-construction apartments because people were otherwise waiting for them to get completed, and that was also stopping the money flow into the real estate sector,” he said.

With regard to lotteries, the GST Council deferred a decision with Jaitley saying that the GoM will meet again to discuss the proposal. Currently, state-run lotteries attract 12 per cent GST, while state-authorised ones carry 28 per cent tax.