Much to the relief of homebuyers and the real estate sector, the GST Council has curtailed tax rates for houses in the affordable as well as non-affordable segments. In a recent meeting, held in February 2019, the all-powerful council focused on the recommendations of the ministerial group on real estate to approve the slashing of tax rates for the sector. In the 33rd GST Council meeting, Union Finance Minister Arun Jaitley and his state counterparts arrived at an unanimous agreement to bring GST rate on under construction properties in normal category down to 5% from the earlier 12%. The GST Council has also reduced GST rate for affordable housing to 1% as compared to what was previously 8%.
As far as the real estate sector is concerned, the revised GST Rates will be effective from April 1, 2019. However, developers will fail to claim input tax credit (ITC) following the tax rate cut for real estate sector. Consequently, the issue of developers not passing on the benefits of ITC to homebuyers, will be rendered irrelevant. Furthermore, according to the Ministry of Finance, unutilized ITC, which was earlier added to the end cost of the project, will now be done away with to enhance the affordability of the prices for the homebuyer.
Arun Jaitley, while briefing reporters after the GST Council meet, stated that this will be a major step in the efforts to give a boost to the realty sector and towards making housing affordable for the middle class, neo-middle class, and aspirational class. The GST Council also revisited the definition of affordable housing in its meeting, with its prime objective being the expansion of the ambit of the segment on twin basis. As far as metro cities are concerned, namely, Delhi-NCR, Mumbai-MMR Region, Kolkata, Chennai, Hyderabad, and Bengaluru, affordable housing segment will include properties with a carpet area of up to 60 sq metres and cost up to Rs. 45 lakh. When it comes to non-metro cities, properties with a carpet area of 90 sq. metres and cost up to Rs. 45 lakh will come under the affordable housing segment.
The GST Council also arrived at a decision that intermediate tax on development rights, such as TDR, JDA, lease (premium), FSI shall be exempted only for residential property on which GST is payable. An officers committee will be appointed to work out the finer details of the scheme, which will then have to be approved by the GST Council. The Ministry believes that this exemption will be of significant help in addressing the cash flow issue suffered by the Real Estate Sector. The changes are also expected to make tax structure and tax compliance easier for builders. The matter related to the GST rate on lotteries will be taken up in the next GST Council meeting, which will be preceded by the deliberations in the Group of Ministries.
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