To boost the residential segment of the real estate sector, the GST Council in its 33rd meeting slashed tax rates for affordable and non-affordable housing.
- GST rate: GST shall be levied at effective GST rate of 5% without Input Tax Credit (ITC) on residential properties outside affordable segment; GST shall be levied at effective GST of 1% without ITC on affordable housing properties.
- Effective date: The new rate shall become applicable from 1st of April, 2019.
- Definition of affordable housing shall be:
- A residential house/flat of carpet area of upto 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having value upto Rs. 45 lacs (both for metropolitan and non-metropolitan cities).
- Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).
- GST exemption on TDR/ JDA, long term lease (premium), FSI: 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.
Reasons behind this decision:
- Real estate sector is one of the largest contributors to the national GDP and provides employment opportunity to large numbers of people.
- “Housing for All by 2022” envisions that every citizen would have a house and the urban areas would be free of slums. There are reports of slowdown in the sector and low off-take of under-construction houses which needs to be addressed.
- To boost the residential segment of the real estate sector, the above-mentioned recommendations were made by the GST Council in its 33rd meeting.
- The buyer of house gets a fair price and affordable housing gets very attractive with GST @ 1%. Tax structure and tax compliance becomes simpler for builders.
- The government cited reports of slowdown in the sector and low offtake of under-construction houses as the reasons. The real estate sector needed to be incentivised given the inventory pileup and the slowdown in launch of new projects.
- Lower offtake restricting money flow in the sector was also among the concerns that led to the lowering of the GST rates. About 40% of the offtake should happen in the first year of completion of a project, a proportion that has now slipped to about 25 per cent.
- Also, it was felt that builders were not passing on the benefits of input tax credit to home-buyers as lower prices.
Opposition by states:
- Some states cited possible revenue loss, valuation of land, breaking of value chain in absence of ITC and sourcing norms for real estate developers as contentious issues.
- Punjab has demanded that the formula of taking one-third of the amount of the property as abatement for the value of land should instead be linked to circle rates. It is because in cities with lower land value, this deprives states of revenue otherwise due to them.
- The Centre’s proposal to introduce an 80% sourcing norm from registered dealers after removal of ITC was opposed by West Bengal as this could lead to use of more cash and result in flow of black money into the sector.
- A committee of officers has been tasked with working out the procedural details regarding transition rules, and norms for reversal of ITC in cases where the builders have taken credit for all units and then sold some of those units with completion certificate.
- The officers’ committee will also examine cases where there is commercial space or shops in ground floors, and whether it should be allowed and if allowed what percentage should be allowed.
Goods & Services Tax Council?
- Status: Constitutional body. As per Article 279A (1) of the Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A.
- Mandate: Making recommendations to the Union and State Government on issues related to Goods and Service Tax.
- Composition: it is chaired by the Union Finance Minister and other members are:
- the Union State Minister of Revenue or Finance and
- Ministers in-charge of Finance or Taxation of all the States.