In a move to give the residential real estate sector a moral boost, The GST council in its 34th meeting which was held on 19th March 2019 in New Delhi, discussed the fine points for the implementation of the recommendations that were made by the council in its 33rd meeting for lower GST rates of 1 % in case of affordable houses and 5% on construction of houses other than affordable houses. The council approved a transition plan for the implementation of the new tax structure for housing units.
Following important decisions have been taken by the council:
- The developers of residential projects which are ongoing or incomplete as on March 31, 2019, will have the option either to choose to continue with the old effective rates of 8% in terms of affordable houses and 12% in terms of housing other than affordable houses with Input Tax Credits (ITC) or to shift to the new 5% and 1% rates, without ITC.
- The new rate of 1% is available on construction of affordable houses which meet the definition as decided by the GST council and for those affordable houses which are being constructed under the existing central and state housing schemes. The 5% rate is applicable for the construction of all houses other than affordable houses and is available on installments which are payable on or after 1 April 2019. This rate is also applicable to commercial apartments such as shops and offices (in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments). These new rates are exclusive of the input tax credit and would be available only when 80% of inputs and input services are purchased form registered persons.
- The council has also provided the definition of the affordable houses, according to which all houses with an area of 60 sqm in metros cities and an area 90 sqm in non- metros and value up to RS. 45 lakh are considered to be affordable houses and are recipients to the 1% tax rate.
- The transition for ongoing projects that are willing to opt for new tax rates would be on pro-rata basis based on a transition formula which will be based on the percentage of flats booked and the invoicing done.
The prospective impact of the revised GST rates is provided as follows:
- The tax percentage reduction on the construction of affordable houses and other than affordable houses can prove to be motivators and doors for the potential demand generation in the residential real estate industry.
- This could lead to marginal traction in demand and help in the creation of transparency for the buyers.
- The GST exemptions on the payment for the Joint development Agreement and the floor space indexes prove to be favourable as they provide compensation for the removal of the input tax credits.
- Savings are available for the buyers who have already booked their apartments or flats or made part payments as they will benefit from the reduction in taxes.
- Furthermore, it would also help boost the retail housing portions as the reductions would give way to reduced prices and hence mean merry time for the buyers.
- However, all may not be hunky-dory after the moderations, a lot of the small sized apartments in the metro cities may not fall in the 45 lakh bracket and may be excluded from the benefits contrary to their counterparts in the non-metro localities.
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