Slashes in GST rate on under-construction residential properties – Boost to real estate sector

Slashes in GST rate on under-construction residential properties – Boost to real estate sector:

On 24 February Goods and Services Tax (GST) Council slashed tax rate on under-construction residential properties, making the effective tax rate 5 percent for the normal category from an effective rate of 12 percent (standard rate of 18 percent less a deduction of 6 percent as land value) and 1 percent for the affordable housing category from effective rate of 8 percent (concessional rate of 12 percent less a deduction of 4 percent as land value), applicable from April 1, 2019..  In both cases, the builders will not be eligible to claim input tax credit in the new structure.

It is estimated that the reduction in GST can potentially reduce the buyers’ payout by 6-7 percent on the overall purchase, depending on the category and help to boost the demand and will bring down the unsold inventory that has been afflicting the real estate sector. The elimination of input credit tax benefit may hit profitability for the supply side but, the potential demand generation will far outweigh any negative aspects leading to greater sales numbers and revenues.

The GST Council also brought in a twin definition of affordable housing, on the basis of carpet area and cost, and residential apartment, with a carpet area of up to 90 sqm in non-metropolitan cities and 60 sqm in case of metros with value up to Rs 45 lakhs will fall under the affordable housing category.

In a move to solve the cash flow problem associated with the sector, the GST council has announced GSTexemption on Transferable Development Rights (TDR), long-term lease (premium), FSI will be exempted only for such residential property on which GST is payable.

This move will give fillip to apartments under construction in the country, and improve the flow of credit to the real estate sectors.