GST council is planning to cut the rates on under-construction flats. The next GST council meet which is expected to be held in January will bring under construction flats in the 5 per cent tax slab. There are two proposals for the same. As per the first proposal- builder will get a full input tax credit (ITC) on input cost which will be fixed at 12 per cent GST rate. After input tax credit (ITC), effective rates will be around 8 per cent. The second proposal is to bring GST rate on under construction flats to 5 per cent without the benefit of an input tax credit (ITC). The second is conditioned that builders will purchase at least 80 per cent of construction material from GST registered shops.
The government wants to make real estate GST compliant sector as majority of the business in the real estate is still not under the purview of indirect tax reforms. If the input tax credit (ITC) or 80 per cent purchase condition is implemented, the business owners will be forced to register under an indirect tax regime. Currently, the GST rate on the real estate sector is 18 per cent but the effective tax rate after various input cost is at 12 per cent.
The move will clear the slug in the real estate sector. After the implementation of GST purchase of under construction flats almost halted because ready-to-move-in flats are virtually exempt from any indirect tax. The crisis in Non-Banking Financial Sectors (NBFCs) has dried up the lending for real estate sector and this is one of the reasons behind a slowdown in the sector. The government is trying to push affordable housing sector with the aim of ‘Housing for all’ by 2022. The market has responded positively to this and the demand and supply in affordable housing are growing.
“The year 2018 has been an important one for the affordable housing segment and the momentum is here to stay. This is reiterated by the fact that majority of the launches, as well as demand across markets, are being reported in this segment only,” said Anshuman Magazine, chairman, India and South East Asia, CBRE, a real estate consultancy. “Policy initiatives (both on the supply and demand side) undertaken by the government in the past two years have contributed to increased homebuyer interest in this segment. Affordable housing, aided by subsidy on PMAY, has been a key phrase this year, giving customers many benefits,” added magazine.
The demand in real estate sector is growing at a good rate after initial weakness, “While the implementation of GST and RERA led to some initial challenges for developers, most of the issues have been addressed and the industry as a whole is aligned. Going by the data for sales and new launches in the January to September period, home buyers are no longer delaying or postponing decisions on buying homes,” said Ramesh Nair, country head, JLL India. The tax cut by the government will improve the demand in the affordable housing sector and will also help in clearing the glut in the sector. The low prices in this sector will help the middle class and economically weaker section of the society to purchase flats. Modi government will be able to reap electoral dividends through growth in affordable housing.
