GST Council may cut tax on construction material to 18%

New Delhi: The goods and services tax (GST) Council will consider a proposal to reduce GST rates on more items used in construction to 18% from 28%, as the government looks to create more jobs and boost the economy ahead of the 2019 general elections.

If the GST Council approves the proposal in its 19 July meeting, it could be a shot in the arm for both homebuyers and builders. The idea is to bring down taxes to aid economic growth, said a person familiar with the development.

The move comes days after the government’s decision to relax rules that would enable more homebuyers to access the interest subsidy scheme. Industry insiders say that construction activity may pick up pace on the back of the recent moves as it would boost demand, while lowering input costs. “It will be helpful in the long run. Lowering GST will help in construction of more homes and increasing inventory,” said Niranjan Hiranandani, president National Real Estate Development Council, and chairman and managing director of Hiranandani Communities.

At present, raw material such as cement and paints come under the 28% tax slab. However, many other items used in construction are in the 18% slab.

“A reduced GST rate on cement would aid in bringing down tax costs for not only individual buyers, but also for businesses, as construction-related GST credits are typically not available,” said Abhishek Jain, partner at EY. “These benefits would further enhance if the GST rate on paints is also reduced to 18%.”

Construction is a labour-incentive sector that contributes 8% to India’s gross domestic product (GDP). After a marginal growth of 1.3% in 2016-17, construction activity had picked up pace to grow at 5.7% in 2017-18. In fact, in the fourth quarter of 2017-18, construction growth was in double digits at 11.5%.

Of late, the government has been looking to devise ways to help the real estate sector clear the existing unsold inventory to kick-start construction demand. Last month, it had relaxed the carpet area norms for middle-income group housing, under the Pradhan Mantri Awas Yojana, to bring more homebuyers under the interest subsidy scheme.

The centre is also looking to achieve its target of housing-for-all by 2022. Besides, the Reserve Bank of India had raised the eligibility limit for housing loans for priority sector lending to ₹ 25 lakh in non-metro cities.

In a 12 June report, Care Ratings said that unsold housing units had witnessed a 10% decline to 808,000 units as in October 2017. “Fewer launches post-demonetization and implementation of Real Estate (Regulation and Development) Act or RERA led to lower inventory addition, while sales overtook the number of units added during the year.” This has been the trend in the past 2-3 years, the report said.