The impact on affordable housing in GST regime

Measures for promoting affording housing

'It is proposed to exempt service tax on construction of affordable houses up to 60 square meters under any scheme of the Central or State Government including PPP Schemes.'

 After a prolonged demand from industry, the Central Government announced above incentive and vide Notification no. 9/2016 dated 01stMarch 2016 came up with a scheme of exemption from service tax liability pertaining to low cost houses up to carpet area of 60 sq meters to be developed by private developers.

Before any new project could have seen the light of day under new exemption notification, and start under the new scheme, there comes a GST from 1st of July 2017 whereby this exemption to affordable housing by private builders, from service tax stands omitted in the new list of exempted services approved by GST council.

Thus the group housing projects proposed by private builders up to a carpet area of 60 square meters no longer qualify for exemption in the GST regime. The GST rate for services as approved by GST Council provides for a GST rate of 12% for construction of housing complex vide Entry no. 19 in GST rate schedule for services without any separate rate structure for affordable housing. Thus there seems to be a U-turn of indirect tax incentive for long demanding sector of affordable housing under the new GST regime. The new GST law doesn’t differentiate affordable housing and luxury housing so far as the same GST rate is applicable on both.

Interestingly the 20 % rate approved by GST council also involves the value of land to compute the taxable value for charging GST. It is in gross violation of the very definition of Supply u/s 7 of the GST law read with schedule III thereto which specifically exclude land from the definition of 'goods' as well as 'services'. If land is neither good nor service then how can the value of land be included while calculating 12 % GST as approved by GST Council. This very provision to include land value for computing GST is sowing seeds of litigation at the very inception of the roll out of GST from 1st of July 2017 until and unless the government corrects the said schedule and exclude land from the scope of GST rates.