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Impact of GST cut on Under construction property in 33rd GST Council Meeting on 24th Feb 2019

Finance Minister Arun Jaitley informed that GST on Under construction building to be reduced from 12% (after abatement towards land cost) to 5%, a reduction of 7%. The Council also reduced the rate of affordable housing from 8% to 1% a reduction of 7%.

GST Council redefined the meaning of affordable housing as follows:

Any house or flat of carpet area of

  1. upto 60 sq mtrs or less(approx 645 sq ft) in metro cities and
  2. upto 90 sq mtrs or less(approx 968 sq ft) in non-metro cities and towns

The value of such house or flat should be Rs 45/- lakhs or less.

  1. No Input Tax Credit will be allowed on input materilas, labour cost.
  2. Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).
  3. Intermediate tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable.

The said rates will become applicable from 1st April 2019.

Impact on real estate sector

It is a big relief to the real estate sector.

Immediate impact on the real estate will be good as lot of unsold stock will move out fast due reduction in GST rates by 7 % in both categories of buyers.

This may give impetus to the Pradhan Mantri Awas Yojana and lot many people may buy the affordable housing. They will also get the benefit of subsidy on interest on Housing Loan up to Rs. 2.60 Lakhs under Centers credit-linked interest subsidy scheme.

Housing sector will invest more in the month of March 2019 to take the benefit of Input tax Credit on Inputs as well as Plant & Machinery as ITC will not be available for inputs after 1st April 2019.

Unutilised ITC which was forming part of cost gets removed

Under construction property which builders were constructing at slow pace will also get a boost and lot of houses will be made ready for possession. This will also resolve cash flow problem of builders.

Tax compliance also becomes simpler for builders.

It will create employment.

There may be some price hike in under construction property as non-availability of ITC will have a negative impact on cost of construction. This may also boost sales of under construction new projects, as lot of buyers who may want to take advantage of both ie reduction in GST rates as well as selling price will book new under construction flats in the beginning of April 2019 (before builders increases price). This will have a positive impact on the sector.

GST Council will decide in March meeting whether a small portion of commercial space attached to residential complexes will also get this benefit.

Impact on under construction property buyers

It is a big relief to the home buyer.

The buyer gets to buy property at cheaper rates due to reduction in GST rates by 7% in both categories affordable as well as others.

Buyers had an issue that ITC benefit was not passed on to them. So this issue will be resolved and they will feel protected.

Those who have already booked under construction property will get benefit of GST on balance payment.

Overall it is win win situation for both builders and home buyers.

Disclaimer: All views are personal and shall not be taken as opinion or statement of Law.


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Category GST, Other Articles by - Suresh Jain 



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