Lowering Of GST from 12% to 5%: How will this move make Houses cheapers?

Lowering Of GST from 12% to 5%: How will this move make Houses cheapers?


June 25,2019

The implementation of GST has undoubtedly was a game changer not just for the Indian Real estate sector but for the entire economy. To put it simply subsuming all indirect taxes into one, GST has successfully streamlined the entire taxation regime in India, enabling higher transparency in the economy.

But the Indian Real Estate sector remains an exception due to high GST rate as well as the additional burden of stamp duties levied on properties. Coupled with RERA, the sector’s current condition can be characterized with a hint of vulnerability due to the sheer number revolutionary administrative policy amendments which have taken place in the last 2 years.

Currently, there is a strong case for a reduction in the GST rate presently at 12% levied for under-construction projects to 5% which is expected to give a huge lift to the entire sector. The first proposal could be a fastened lowered twelve per cent GST rate with full Input tax Credit (ITC) to the builder. This will build the effective GST rate to be eight per cent once the input value of the land is accounted for and reduced.

The second proposal before the GST Council is to bring down the GST rate on under-construction flats to 5 percent, without the benefit of ITC. This proposal has a condition that the builders would have to furnish proof that 80 percent of the construction material has been purchased from suppliers who are registered with a GST number.

With this, the government will manage to bring down the effective GST rate on under-construction flats to 5 percent for customers, while builders will be forced to promote purchases of construction material from GST-complaint entities. Currently, an 18 percent GST is charged on the real estate sector. But once the various input costs like the price of land are computed, the effective rate comes down to 12 percent.

The government is moving in with the changes for under-construction flats as the builders are stuck with a huge inventory of under construction apartments. This is as a result of consumers opting to select ready-to-move flats as they're nearly exempted from GST. Lending to the important estate sector has been dry recently. The retardation within the assets sector is additionally symptom allied sectors like steel, cement, and construction. The overall property costs are broadly divided into two main components - one which is paid to the builder or seller which is 80-85 percent of the overall property cost. The remaining 15-20 percent goes to the government as taxes. The ready-to-move-in properties are exempt from GST. Buyers need to only pay stamp duty and registration charges as taxes, which comprise 7-8 percent of the total property cost.

For the cheap housing sector, the government has provided a GST benefit to its Credit Linked Subsidy Scheme (CLSS) for economically weaker sections, low and middle-income group home buyers. Beneficiaries of these schemes get interest subsidy and concessional GST rate of 8 percent.

In fact, to boost sales in this segment, the government has urged developers not to charge any GST from home buyers because the effective 8 percent GST rate in affordable housing can be adjusted against their ITCif opted for.

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