In a move that will help home buyers, the government slashed the Goods & Services Tax (GST) rate on properties under construction from 18 percent to 5 percent. Experts agree that this will push demand and increase sales of under-construction properties. However, the withdrawal of input tax credit is being seen as a dampener.
“The GST Council has accorded big relief to the real estate sector… This will give boost to housing for all and fulfil aspirations of neo-middle class and the middle class,” finance minister Arun Jaitley said after the decisions were cleared by the council.
Input tax credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs.
Here is all you need to know about it
- At present under-construction property or ready-to-move-in flats where a completion certificate has not been issued at the time of sale comes under the 18 per cent GST slab but effective rate is 12 per cent as 6 per cent is deducted as land value.
- For affordable housing the concessional GST is 12 per cent minus 4 per cent as land value, which means an effective rate of 8 per cent
- The Council also cut GST rate on the affordable housing to one percent from the current 8 percent
- It created additional conditions under the two categories
- Under affordable housing category, houses divided into two categories – metro and non-metro. The determining criteria for eligibility will be cost and carpet area.
- This is a departure from when builders used to charge for ‘super area of the houses’ under which the buyer used to end up paying more than the total size of the house.
- The GST Council has decided that in metro areas – Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad), Mumbai, Kolkata, Chennai, Hyderabad and Bangalore, the eligibility for affordable housing would be properties worth Rs 45 lakh and 60 sq metre carpet area.
- In non-metro cities it would be Rs 45 lakh and 90 sq metre.
- Benefit of tax credit on inputs such as steel, cement and paint, withdrawn on complaints of builders pocketing the gains.
- The new rates will be effective from April 1 as the Centre and states will work out detailed rules and
- The move is seen to be crucial to keep tabs on a sector ridden with cash transactions and black money.
- Buyers who are currently on construction-linked payment schemes will benefit. However, those who have already made 95% down payment will not get the benefit
- The residential sector has seen periods of inactivity in some parts of the country following the failure of some property developers.
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