The GST (Goods and Services Tax) Council, in its 33rd meeting, announced reduction of GST rates for under-construction houses to 5 per cent, and 1 per cent for affordable housing with effect from 1st April 2019. This change is expected to bring about a reduction in housing cost for prospective buyers.
After this change, the Goods and Services Tax rates for affordable homes would reduce from 8% to 1% and for other homes, it would reduce from 12% to 5%. Both these rates are without input tax credit (ITC). In the subsequent meeting of the council held on March 19, 2019, it was decided that builders can choose between higher rates with ITC on raw material or lower taxes without any benefits extending to unfinished projects. This means builders can now decide if they want to pay 8 per cent for affordable houses with tax rebates or 1% without the rebate; in case of other homes, 12% with ITC benefits or 5% without any tax rebates. It should be noted that this option can only be exercised once where construction and booking have both been started prior to April 1, 2019, but not been completed by March 31, 2019.
The Council has also altered the definition of affordable homes. Affordable housing now refers to a house with a carpet area of less than 60 sq.m in metros, and less than 90 sq.m in non-metros, and at a cost of up to Rs.45 lakh. Metro cities include Bengaluru, Chennai, Delhi-NCR, Delhi, Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad, Hyderabad, Kolkata and Mumbai Metropolitan Region. This simply implies that more premium budget properties in bigger cities like NCR and MMR will now fall in the affordable category, benefiting the buyers. Fully constructed houses that have received completion certificates will not face GST. Goods and Services Tax will be applicable to houses that have been constructed, but not yet issued completion certificates.
Highlights of GST Reduction
- The tax rate for under-construction houses has been reduced to 5%.
- GST rate for affordable housing has been reduced to 1%.
- Tax Reduction is expected to lower cost of housing.
- However, builders have the option to pay the old rates with ITC benefits.
- Affordable housing has been redefined i.e carpet area of less than 60 sq.m in metros; less than 90 sq.m in non-metros; and at a cost of up to Rs.45 lakh.
- Fully constructed houses that have received completion certificates will not face GST.