New Delhi:In a move that would help middle class home buyers and also address the vexing issue of restricted cash flow problem for the real estate sector, the Goods and Services Tax (GST) Council on Sunday announced that the GST payable for under construction properties for affordable houses will be five per cent.

The new rates will be without input tax credit and the taxes lowered from the existing 12 per cent, Finance Minister Arun Jaitley said.
The fresh tax rates in principle approved by the Council chaired by Finance Minister has taken into consideration various factors and ‘advantages’ of their decision.

These would include among other things issues like ‘buyer of house’ getting a fair price and affordable houses also getting “very attractive with GST at the moderate rate of one per cent only”.

The GST Council also cut GST rates on affordable housing to 1 per cent from the current 8 per cent and expanded the scope of affordable housing to those costing up to Rs 45 lakh and measuring 60 sq metre in metros and 90 sq metre in non-metro cities.

Making the announcement at a media briefing, Finance Minister Jaitley said “We expanded the definition of affordable housing so that aspiring people can buy better houses”.

“We adopted twin definitions….one based on carpet area and the other on the basis of cost,” he said.

“A residential house/flat of carpet area of up to 90 sqm in non-metropolitan cities/towns and 60 sq m in metropolitan cities having value up to Rs 45 lakh (both for metropolitan and non-metropolitan cities). The metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region),” the official statement said.

It is also explained in the statement that ‘Unutilized inputs tax credit – which used to become cost at the end of the project – will not get removed and should lead to “better pricing”.

Moreover, the tax structure and tax compliance will also become “simpler for builders”.

The GST Council meet is also seen as an attempt to give relief to middle class and as well a timely boost to the real estate sector.
“The GST shall be levied at effective GST rate of 5 per cent without input tax credit on residential properties outside affordable segment,” an official statement said here.

For affordable housing #gst rate reduced from 8 to 1 % & for non affordable from 22 to 5 % without ITC.Definition of affordable changed to 90 & 60 sq mtr for non metro & metro with a capping of 45 Lakh for both.

— Sushil Kumar Modi (@SushilModi) February 24, 2019

The statement said, “Real estate sector is one of the largest contributors to the national GDP and provides employment opportunity to large numbers of people. 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 GST shall be levied at effective GST rate of 5 percent without inputs tax credit on residential properties outside affordable segment and it shall be levied at effective GST of one percent without input tax credit for affordable housing properties”.

The effective date for the new rates shall become applicable from 1st of April, 2019, the statement said.

Mr Jaitley also explained that for the purpose of definition of affordable houses, the basis of carpet area was chosen as “the new tax regime will be depended on the area of the flat inside”.

“The argument about super area was not accepted as many developers have made the entire concept of super area flexible,” the Finance Minister said.