GST rate cut in real estate: Buying flats can become cheaper after January. This is why – Business News

GST rate cut in real estate: Buying flats can become cheaper after January. This is why – Business News

If you are a homebuyer, there is good news for you in the offing. The Goods and Services Tax (GST) Council is mulling over proposals to cut GST rates on real estate. Sources in the Council said a positive decision in this regard is expected to be taken during the next meeting that will be held in January.

Once the proposals are cleared, buying an under-construction apartment will become cheaper.

Sources in the Fitment Committee of the GST Council, which has been working on rationalising the slabs under which commodities are taxed, said that two proposals are under consideration to provide a rate cut on under-construction flats.

The first proposal is a fixed lowered 12 per cent GST rate with full input tax credit (ITC) to the builder. This will make the effective GST rate to be 8 per cent once the input cost of the land is accounted for and reduced.

The second proposal before the GST Council is to bring down the GST rate on under-construction flats to 5 per cent, without the benefit of ITC. This proposal has a condition that the builders would have to furnish proof that 80 per cent of the construction material has been purchased from suppliers who are registered with a GST number.

With this, the government will manage to bring down the effective GST rate on under-construction flats to 5 per cent for customers, while builders will be forced to promote purchases of construction material from GST-complaint entities.

Currently an 18 per cent GST is charged on the real estate sector. But once the various input costs like price of land are computed, the effective rate comes down to 12 per cent.

The Fitment Committee will be scrutinising the viability and legal aspects involved in this. With the 2019 Lok Sabha election ahead, the Modi government wants real electoral dividends from the move. The idea is to clear the proposals by the next GST Council meet scheduled in January, so that its benefits start kicking in before the 2019 Lok Sabha polls.

The government is moving in with the changes for under-construction flats as the builders are stuck with a huge inventory of under construction appartments. This is because buyers prefer to go for ready-to-move flats as they are virtually exempted from GST. Lending to the real estate sector has been dry of late. The slowdown in the real estate sector is also hurting allied sectors like steel, cement and construction.

The overall property costs are broadly divided into two main components – one which is paid to the builder or seller which is 80-85 per cent of the overall property cost. The remaining 15-20 per cent goes to the government as taxes.

The ready-to-move-in properties are exempt from GST. Buyers need to only pay stamp duty and registration charges as taxes, which comprise 7-8 per cent of the total property cost.

For the affordable housing sector, the government has provided a GST benefit to its Credit Linked Subsidy Scheme (CLSS) for economically weaker sections, low and middle income group home buyers. Beneficiaries of these schemes get interest subsidy and concessional GST rate of 8 per cent.

In fact, to boost sales in this segment, the government has urged developers not to charge any GST from homebuyers because the effective 8 per cent GST rate in affordable housing can be adjusted against their input tax credit if opted for.

This content was originally published here.

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