NEW DELHI: Buying your dream flat will be cheaper from 1 April as the government has not only slashed the goods and services tax (GST) rates on all under-construction flats but also widened the definition of the affordable housing segment.
After the GST Council meeting yesterday, finance minister Arun Jaitley had said the relief provided to the real estate sector will boost housing for all and fulfill the aspirations of the neo/middle classes.
Here are 10 things to know about the new GST rates for the real estate sector:
1) The GST on under-construction flats, which are not in the affordable housing segment, has been reduced to 5% without input tax credit (ITC) from 12% earlier with the ITC. The GST rate on affordable homes has been reduced to 1% without the ITC from earlier 8% with the ITC.
2) The rate cut is for under-construction property or ready-to-move-in flats where the completion certificate is not issued at the time of sale. Properties, for which construction has been completed, attract stamp duty, not the GST.
3) The GST Council has also redefined the affordable housing segment, which did not have any valuation threshold till now. Under-construction properties priced up to ₹45 lakh will now be treated as affordable housing projects and will attract 1% GST without the ITC.
4) Although the cap on the price of affordable houses is ₹45 lakh for both metro and non-metro projects, the carpet area requirements differ. Only those flats with the carpet area of 60 square metre in metros (Delhi-NCR, Bengaluru, Chennai, Hyderabad, Mumbai-MMR and Kolkata) and 90 square metre in non-metros falling under the ₹45 lakh cap will be eligible for the 1% GST rate.
5) Under the new definition of affordable housing, you can buy a two-bedroom house (60 sq m) in a metro city and a three-bedroom house (90 sq m) in non-metros and pay only 1% GST.
6) The new GST rates in the real estate industry will be effective from 1 April.
7) According to data from Anarock property consultants, there are 5.88 lakh unsold under-construction houses in the biggest seven cities of India, of which 34% are priced below ₹40 lakh. “With affordable housing now defined within ₹45 lakh, more properties qualify for this category. The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range – a win-win for both builder and buyers," said Anarock’s chairman Anuj Puri.
8) Knight Frank India’s chairman and managing director Shishir Baijal estimates that the reduction in the GST can potentially reduce buyers' payout by 6%-7% on the overall cost, depending on the category. The increase in sales will also bring down the unsold inventory which has been afflicting the real estate sector, he said.
9) The lowering of the GST rates would lead to a revival of demand for under-construction apartments, that had tapered down as buyers were preferring ready apartments which did not attract any GST, said M.S Mani, partner, Deloitte India.
10) Going by the new GST rates, builders will not be able to claim the ITC. “Having certain categories which are not eligible for input tax credit is an aberration of basic principles of a good GST, to leading to issues of traceability of transactions and making the transactions opaque," Mani said.
