Union and state governments on Sunday decided to lower Goods and Services Tax (GST) on under construction housing properties to 5% from an effective 12% in a pro-consumer decision ahead of national polls due by April-May.

GST rate on affordable housing projects too has been lowered from an effective 8% to 1%. Under-construction properties priced upto Rs. 45 lakh will qualify as affordable housing projects for the purpose of GST relief in both metro cities as well as non-metro cities, finance minister Arun Jaitley told reporters.

“We wanted to give a boost to the real estate sector as well as give relief to the middle class, neo-middle class and the aspirational middle class class. This will come into effect 1 April 2019,” said Jaitley.

Although the cap on price of the property is ₹45 lakh for both metro and non-metro projects to get the 1% tax rate, they have to meet different carpet area requirements. Only those with the carpet area of 60 square metre in metros and 90 square metre in non-metros falling under the Rs. 45 lakh cap will be eligible for the 1% rate, explained Jaitley.

In both the cases, builders will not be able to adjust the taxes paid on raw materials like cement and steel against the final tax liability on under-construction properties. This was not the case earlier. The composition scheme announced for properties, like those applicable to restaurants and traders, consists of a small flat tax rate without input tax credits.

A videoconference of the Council’s meeting held last Wednesday was adjourned as several states suggested a face to face meeting on Sunday was needed to discuss the issue thoroughly.

Sunday’s decision was broadly based on recommendations of a ministerial panel led by Gujarat deputy chief minister Nitin Patel which favoured lowering the GST rate on under-construction properties.

The idea is to boost the real estate sector which is struggling with record inventories. At present, the effective rate of GST on under-construction properties is 12% after allowing for the cost of land, which is out of the purview of GST. Properties where the construction has been completed attract stamp duty, not GST.

Source – livemint dt 24-02-2019