On 8th Feb,GoM recommended a GST rate cut on all under-construction houses to 5%, from 12% at present, and slashing of GST rate to 3% from 8% on ‘affordable housing projects’. The rate cuts would be accompanied by denial of input tax credit (ITC) to the builders. The proposed change is intended to correct the practice of builders not passing on the benefit of reduced tax incidence to consumers. It could also give a further boost to affordable housing projects, incentivised by the government.The GoM proposals need to be approved by the GST Council.
Pratik Jain, partner and leader, indirect tax, PwC India said that reducing the prevailing GST rate on residential property bringing the effective tax rate down to 8% from 12%, while continuing the benefit of input tax credit would be a better approach. Loss of ITC could lead to increase in the base price. Currently, GST is levied at 12% on payments made for under-construction property or ready-to-move-in flats (18% GST less abatement) where completion certificate has not been issued at the time of sale. GST is not levied on buyers of real estate properties for which completion certificate has been issued.
GST is levied at a lower rate of 8% in the case of affordable housing projects like Jawaharlal Nehru National Urban Renewal Mission, Rajiv Awas Yojana, Pradhan Mantri Awas Yojana .Given the higher tax on inputs, the builders actually pay nil tax on the value they added, but this benefit barely reaches the consumers.
Massive investments are being planned in the affordable housing segment; under the Pradhan Mantri Awas Yojana (Urban) itself, the total investments envisaged by 2022 is Rs 3.85 lakh crore.
