GST set lower at 5% for housing projects; affordable segment to pay 1%

Effective 1 April, Goods and Services Tax (GST) will be levied at five per cent from the present effective rate of 12 per cent while the effective rate of GST for affordable housing projects has been lowered to 1 per cent from 8 per cent at present.

The 33rd reconvened meeting of the GST Council on Sunday lowered the tax rate for under-construction housing outside the affordable segment to five per cent (without ITC) from the present effective rate of 12 per cent (after one-third abatement of land). 
For affordable housing, the GST rate has been reduced to one per cent from eight per cent.
Addressing the media after the GHST Council meeting, finance minister Arun Jaitley said, “We have adopted twin definition of affordable housing. One, on the basis of carpet area and another, on the basis of cost. In metro cities, a 60 sq metre carpet area and Rs 45 lakh apartment will fall under affordable housing. In non-metro areas, it will be 90 sq metre carpet area and Rs45 lakh apartment. This will come into effect from April 1.”
The affordable housing segment includes a residential house/flat of carpet area of up to 90 sq m in non-metropolitan cities/towns and 60 sq m in metropolitan cities having value up to Rs45 lakh (both for metropolitan and non-metropolitan cities).
For this purpose, Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) have been included in the definition of metropolitan cities.
As regards intermediate tax on development right, such as TDR, JDA, lease (premium), FSI will be exempted only for such residential property on which GST is payable.
The government said details of the scheme will be worked out by a committee of officials, which will then be approved by the GST Council at a meeting to be called specifically for this purpose.
The new tax rate in principle was approved by the Council taking into consideration the following advantages:-
  • The buyer of house gets a fair price and affordable housing gets very attractive with GST at 1 per cent interest rate;.
  • Interest of the buyer/consumer gets protected; ITC benefits not being passed to them will become a non-issue;
  • Cash flow problem for the sector is addressed by exemption of GST on development rights, long term lease (premium), FSI etc;
  • Unutilised ITC, which used to become cost at the end of the project gets removed, leading to better pricing; and
  • Tax structure and tax compliance becomes simpler for builders.
GST Council decided that the issue of tax rate on lottery needs further discussion in the GoM constituted in this regard.
Real estate sector is one of the largest contributors to the national GDP and provides employment opportunity to large numbers of people. “Housing for All by 2022” envisions that every citizen would have a house and the urban areas would be free of slums. There are reports of slowdown in the sector and low offtake of under-construction houses which needs to be addressed. 
A lower rate of GST is expected to give a big boost to the residential segment of the real estate sector.