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GST Council Slashes Tax On Under Construction Housing Properties From 12% to 5%

The GST Council, headed by Union Finance Minister Arun Jaitley, on Sunday provided a big relief to home buyers by slashing tax rates on under-construction housing properties or ready-to-move-in flats to 5 per cent from the existing 12 per cent without an input tax credit.

The GST Council, headed by Union Finance Minister Arun Jaitley, on Sunday provided a big relief to home buyers by slashing tax rates on under-construction housing properties or ready-to-move-in flats to 5 per cent from the existing 12 per cent without an input tax credit. The council has also reduced GST rates on affordable housing from 8 per cent to 1 per cent.

Arun Jaitley said that this reduction will give a boost to the construction centre. He further said, “Definition of affordable changed to 90 sq mtr and 60 sq mtr for non-metro and metro with a capping of Rs 45 lakh for both.”

Major Highlights:

  • The new tax rules will come into effect from April 1, 2019.
  • No tax is levied in cases where completion certificate has been issued at the time of sale.
  • Builders cannot be able to claim an input tax credit (ITC) under the new GST rates.

Reactions from the Real Estate Industry on GST Council’s Meeting

Anshuman
Mr Anshuman Magazine
Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE

"This is a huge relief for home buyers and the developers alike. The reduction in GST on under construction residential projects will further give a much-needed boost to the industry. Having a standard tax will surely help the developers to save cost and  achieve economies of scale at various levels and help them to pass the benefit to the consumers.”

Ruparel
Mr Amit Ruparel
Managing Director, Ruparel Realty 

“We welcome GST council’s timely decision to slash the rates on under-construction residential properties, making the effective tax rate 5 percent for the normal category and 1 percent for the affordable housing category. This will immensely help to boost demand on under-construction residential properties, and also simplify tax structure and compliance for builders. However, the industry was also hoping for clarity on the taxes to be paid on raw materials like cement and steel against the final tax liability on under-construction properties. Also, the cap of Rs 45 lacs is not really encouraging for Mumbai as it cannot be compared to other regions.”

Farshid
Mr Farshid Cooper
Managing Director at Spenta Corporation

“The 33rd GST council meeting was positive for homebuyers and in turn for developers. The issues regarding transaction costs and affordability which have plagued the sector over the last 18 months or so has been addressed. The developer fraternity will be relieved as this could potentially be the catalyst to boost demand for under construction homes. Further, the reduction in rates from 8% to 1% for the affordable housing sector will help the sector grow. Also, doing away the ITC (Input Tax Credit) will make GST compliance for easier and more cost-effective for developers. That said, without ITC developers will now have to deal with increased cost of 18% (which is the GST rate for most construction-related items) and account for the same when planning cash flows and project costs."

Zulquer
Mr Zulquer Nain
GM-Projects, Rudrabhishek Enterprises Limited

Real estate is a high-value purchase, the proposed variance in GST rates is going to be substantial in absolute monetary terms. However, there is a flip side that the builders are not allowed to claim an input tax credit (ICT). Additionally, the definition of affordable housing has been further widened both for the metro (60 sq.mt. or less) & non-metro locations (90 sq.mt. or less)."

GST- madhusudan

Mr Madhusudhan G
Chairman and MD, Sumadhura Group

The approved reduction in the levy on under-construction homes and the raised threshold for affordable housing by the GST Council is largely seen as a welcome move by the industry, especially for the home-buyers segment. As pointed out by our finance minister, the move will certainly make housing affordable for middle class, neo-middle class and aspirational class. However, in order to fulfil the government's mission of ‘Housing for all by 2022’, the ITC (input tax credit) I opine should continue or else it is likely to put the entire tax burden on developers hitting the real estate down further."

Rahul Shah

Mr Rahul Shah
CEO, Sumer Group

 "The decision by the GST council to reduce the GST to 5% for under-construction properties is an extremely welcome step. It means a direct saving of 7% on the total unit price for the consumers, which is very significant. It will certainly lift up customer sentiments and sales is expected to grow significantly. Moreover capping of GST at 1% for affordable housing will surely boost sales in non-urban, tier 2 and tier 3 cities. Put together, it is a significant step in giving the much-needed boost to the real estate sector. We have already seen the RBI reducing the repo rates earlier this month. Put together both the decisions will enhance the buying capacity of the potential home buyer."

T Chitty

Mr T Chitty Babu
Chairman and CEO, Akshaya Pvt Ltd

"The wait is over for the real estate sector. The revision in GST rates is certainly going to bring much-needed relief for the home buyers. For real estate developers, compliance will become more transparent and simpler. We welcome the government’s decision to revise the GST rates for affordable housing segment to 1%. The change in the definition of affordable housing is certainly going to improve buyer sentiments. Also, the much-awaited change in GST rates of under-construction properties to 5% is a going to be a game-changing decision for the home buyers and will boost the housing sales in this segment and attract a slew of investments in the sector. Homebuyers will be able to save a lot on their home investments depending on the value of the homes due to the revision in GST. We can witness a tremendous turn around in the coming quarters as the home buyers who were holding off their purchase decisions, will now be able to take the advantage of both the recent repo rate cut and the revised GST structure and allow them to make their home buying decisions with much confidence. With RERA in place too, the real estate sector is heading towards an upswing in the near future."

Mr Jose’ Braganza, Joint MD, B&F Ventures (P) Ltd

"The GST rate cut announced by Union Finance Minister Mr Arun Jaitley will provide much-needed relief for the home buyers looking to purchase under construction properties for end use or investment purposes. With a rise in the number of unsold under construction inventory, this move will help reduce the gap between demand and supply in the industry.  It will not only attract first time home buyers but also HNIs and NRIs.  We welcome this decision of the GST Council and hope to see a flourishing growth of the real estate sector."    

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