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GST relief for realty sector from April

If you have planned to buy a new home, but deferred it due to high Goods & Services Tax (GST) rates, here is good news for you. Come April 1, you will get huge relief as GST on real estate sector will be reduced from the new financial year. As per revised tax rates announced by the GST Council in February this year, effective GST on under-construction premium properties will be just 5 per cent, a significant reduction from 12 per cent now. In fact, under-construction properties attract 18 per cent GST. But the effective rate currently is 12 per cent after factoring in one-third abatement for the value of land. The bigger news is the GST on affordable houses, which has been cut to mere 1 per cent from 8 per cent earlier - a move which is expected to give big boost to the real estate sector. Further, the lower tax is also likely to help the central government to realise its vision of 'Housing for All by 2022'. However, under the current tax structure, there is input tax credit (ITC) facility under which developers can get back tax paid on inputs like cement used for construction. They are required to pass the benefits from ITC to home buyers. In reality, that has not been happening as real estate is mostly unorganised and getting ITC is a complex process. This has forced the government to cut the tax and remove ITC on real estate. However, ready-to-occupy residential units and second hand sales don't attract GST. "All these days, we have been reluctant to buy under-construction property as GST is very high. That's why we have been looking for an old house or apartment. With cut in GST from next month, we can now buy new under-construction apartment or house with latest features," said Venkatesh, a private employee. However, the new GST rates are applicable to the projects which will be launched after April 1. For the projects which are already under construction, developers have the option to choose old GST rates. Some say this will create lot of confusion. "Giving developers an option to choose old tax rates for under construction projects is a bad idea. It will create lots of confusion as project construction will continue for at least three years. GST Council made the process more complex for under construction projects," Arani Sumanth Reddy, president-elect, National Association of Realtors- India (NAR India), told The Hans India. He also rued 18 per cent GST on services rendered by real estate consultants. Apart from reducing GST, the central government also redefined the affordable housing norms. In metros such as Hyderabad, Delhi-NCR, Bengaluru, Chennai, Mumbai-MMR and Kolkata, flats priced up to Rs 45 lakh and measuring 60 square metres of carpet area will fall under the affordable housing category, thereby attracting just 1 per cent GST. Interestingly, Hyderabad has for the first time been categorised as metro. Further, bigger size units will also get cheaper when it comes to non-metros. In such locations, houses measuring up to 90 square metres (968.75 sft) will fall under affordable category. However, the cut in GST may not solve all the problems that real estate sector is currently facing. Furthermore, it may hit margins of developers as they will continue to pay high GST on cement (18 per cent) and other building materials without any ITC. The other downside of removing ITC is that use of black money is likely to go up, defeating the very purpose of GST regime. Nonetheless, home buyers will definitely benefit from lower GST on real estate. Source: The Hans India  |

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