The demand for residential properties is soon going to turn towards upward curve after the government decision to cut the goods and services tax rates for under construction projects current 12% rate to 5% and affordable homes to from 8% to 1 %, which will be effective from 1st April. This decision was made to push the stated objective of “Housing For All 2022”. “The council has decided that after removal of ITC (Input Tax Credit) the rates will be 5% for normal housing properties and 1% for affordable housing,” said finance minister, Arun Jaitley. For GST applicability on affordable housing, currently there is no valuation and the calculation of carpet area varies from project to project. The GST is at 12% on payment made for under-construction properties or ready-to-move-in flats where completion certificates have not been issued at the time of sale.
This move will give the necessary fillip to the demand in under -construction segment, which has been suffering from low sales levels for last many quarters. This reduction will expand the scope of affordable housing to those costing up to 45 lakh and measuring 60 sq meter in metro city like Bengaluru, Chennai, Hyderabad, Delhi, Mumbai-MMR and Kolkata and 90 sq meter in non-metro cities which approximate translates to a 2-bed room house in a metro and a possibly 3-bed room house in non-metros. Introduction to affordable homes will withdraw benefits on tax credit inputs like steel, cement and paint on which the builders were getting good gains.
The centre and states will still workout out detailed rules and are expected to stipulate that a vast majority of inputs and capital goods be purchased from vendors who are registered to pay GST. This move will be acting as a crucial tab that will stop the money flow into the real estate sector. The GST Council’s decision will benefit buyers who are currently on construction-linked payment schemes but not those who have already made 95% down payment.
As the definition of affordable housing is widened, more builders can mobilize projects across the country, and aspiring home buyers now have a wider and better range of options to choose from.