GST rate cuts in the real estate sector

The real estate sector is cheering the GST rate cut announced recently by the GST Council of India.  The 33rd GST Council meeting on Sunday, 24th February 2019, lowered the GST rate on under construction properties from 12% to 5% and for affordable housing, from 8% to 1%. The reform is expected to impact sales amongst the neutral players waiting to decide on investing in properties. According to the Confederation of Real Estate Developers Association of India (CREDAI), many potential home and flat buyers are encouraged to reach out to the developers. The rates will come into force from first April 2019. It is brought into force by notification in the Official Gazette.

The GST rate cut will provide the much-needed relief to the real estate sector. People and buyers who are currently not able to decide due to the price and tax elements will be inclined to make new decisions as the new GST rates are now conducive and more affordable. The key decisions made by the council are as follows.

Change in the definition of ‘Affordable Housing’

The definition of “affordable housing” under the GST law has undergone a change. The earlier definition is as follows:

“Affordable Housing” is defined as a housing project using at least 50% of the Floor Area Ratio (FAR)/Floor Space Index (FSI) for dwelling units with carpet area 1 of not more than 60 square meters.”

The new definition consists of two requirements to classify housing as affordable. Affordable housing in the metro cities, namely Delhi NCR region, Mumbai MMR region, Kolkata, Chennai, Hyderabad, and Bengaluru, will include properties with a carpet area up to 60 square meters and cost up to Rs 45,00,000. For non-metro cities, properties with a carpet area of 90 square meters and cost up to Rs 45,00,000 will fall under the affordable housing segment.

The withdrawal of Input Tax Credit

The revised GST rates will withdraw the earlier benefit of the input tax credit. Thus, the reduction of the GST rate will directly benefit home buyers. This will make the tax applicability and real estate transactions more transparent.

Exemption on TDR, JDA, Lease, and FSI

The GST council meeting has also decided that an intermediate tax on Transferable Development Rights, Joint Development Agreements, long-term lease (premium) and Floor Space Index (FSI) shall be exempt only for such residential properties on which GST is applicable. The exemption will facilitate better cash flows in such transactions.

On-going Projects

With regard to those projects/properties where construction work has already begun, transition rules and guidelines will be drafted by the tax authorities. This will provide clarity on applicability of GST on such projects/properties.

The change in the GST rates will boost the demand for real estate due to the recent slow-down in the sector. This move should not only drive sales but also promote the developers to undertake affordable housing projects. These changes also seek to make the tax structure more transparent, the tax compliance easier and less cumbersome for developers.




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