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Boost to real estate sector by GST

CA Umesh Sharma 
on 05 March 2019

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Arjun (Fictional Character): Krishna, what decisions were taken in the GST Council Meet held on 24rth February?

Krishna (Fictional Character): Arjuna, This meeting was primarily in relation to the real Estate Sector. To boost the residential segment of the real estate sector, certain recommendations were made in GST rate, applicability, exemption, etc.

Arjun: Krishna, What GST rates were recommended for Real Estate Sector and from when would they be made applicable?

Krishna: Arjuna, Following GST rates were recommended for Real Estate Sector:

  1. GST shall be levied at an effective rate of 5% but no ITC benefit would be given. This would be for residential properties which are outside affordable housing;
  2. GST shall be levied at an effective rate of 1% without ITC, on affordable housing properties.
  3. The new rate shall become applicable from 1st of April, 2019 subject to notification being issued for the same.

Arjun: Krishna, What is meant by Affordable housing?

Krishna: Arjuna, A residential house/flat are the one's which have carpet area of upto 90 sqm in non-metropolitan cities/towns or 60 sqm in case of metropolitan cities, having value upto Rs. 45 lacs (both for metropolitan and non-metropolitan cities).

Metropolitan cities are Bengaluru, Chennai, Delhi MCR, Hyderabad, Kolkata and Mumbai.

Arjun: Krishna, what would be the taxability of TDR, JDA (Joint Development Agreement), long term lease (premium), etc?

Krishna: Arjuna, Intermediate tax on development right, such as TDR, JDA, lease (premium), etc shall be exempted for such residential property on which GST would be payable.

Arjun: Krishna, what are the benefits of this recommendation?

Krishna: Arjuna, Following are the benefits expected out of this recommendation:

  1. The buyer of house gets a fair price and affordable housing gets very attractive with GST @1%.
  2. Interest of the buyer/consumer gets protected; as there would be no issue even if ITC benefits are not passed on by the builders.
  3. Exemption of GST on development rights, long term lease (premium), FSI etc would solve the cash flow problem of the sector.
  4. Better pricing are expected, as the unutilized ITC at the end of the project would no longer be the cost to the supplier.
  5. Tax structure and tax compliance would become simpler for builders.

Arjun: Krishna, What one should learn from this?

Krishna: Arjuna, let's see how these recommendations would remove the Sufferings of real estate industry as the final scheme is yet to be notified by the council.


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