GST and Affordable HousingJuly 1, 2020

GST and Affordable Housing

Even though half a year has gone by, homebuyers are still sceptical as far as the impact of GST on new homes is concerned. There are still analysed and questions going around regarding the effects of GST (goods and services tax) on the housing sector. While the government has reduced tax for affordable housing to 12% from an earlier 18%, it is unlikely to have any real impact on the actual prices for buyers of affordable homes. This is because the GST rate for finished homes still stands at 12%. The rates for luxury homes is however understandably different – and higher.

There is a clamour for lowering this GST further so that it would result in an increased demand for under-construction homes, which is lacking now. The gap in the tax rates between ready-to-move-in properties that had already received an OC (Occupation certificate) prior to the implementation of GST and the current under-construction properties has led to lower demand for the latter. 

As of now, properties under construction in the affordable segment attract a GST of 12% while competed properties that already received an OC prior to the implementation of GST do not come under the ambit of the GST. When a builder sells an apartment, GST will be calculated at 18% on the two-third value of the apartment; the remaining one-third value of the apartment is used to adjust the land value (which doesn’t come under the ambit of GST either), thus making the effective tax rate to stand at 12%. In this way, the government ensures that developers pass on the input tax benefits to the homebuyers.

The implementation of the GST has brought the numerous indirect taxes (excise duty, service tax, VAT, etc) under one structure. So, what you are left with now is direct taxes (which include wealth tax and capital gains tax), stamp duty as well as GST on all property-related transactions.  

The tax breaks and sops were given to developers will make the construction of affordable housing more profitable, and builders are expected to pass off some of the benefits to the consumers. Schemes such as the Pradhan Mantri Awas Yojana will further help builders stuck with projects to coast through these difficult transition times without too much loss.

Overall, the impact of GST as a whole on the real estate sector is expected to be tax neutral. It’s also expected to keep prices down for the affordable housing segment while increasing costs marginally for the high-end luxury segment. 


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