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Real estate sector hopes for lower GST on under-construction flats

Whether home buyers would be paying more or less (EMIs) under the new GST regime has unnerved buyers and developers alike with both hoping to see lower GST rates (preferably 12%) to keep home buying an affordable dream. Industry stalwarts strongly feel that the recent policy encouragement provided to affordable housing segment (granting infra status to affordable housing and subsidising interest rates on affordable home loans etc.) would be watered down if the higher GST rate of 18% becomes applicable as it would increase the cost of homes for end-users quite considerably. “I expect a two-tier GST structure within the real estate, one for affordable, while the other for higher-priced properties, with the former likely to get a favourable treatment in terms of lower taxes,” says Sunil Mishra, Chief Strategy Officer at PropTiger.com. Affordable houses that the government intends to promote are ones that have a price tag of about Rs 25 lakh.

However, completed residential structures (flats) have been kept out of the GST ambit. Once the GST comes into force - hopefully by 1 July - all the goods produced and services provided in the country would be fitted under one of the four taxation slabs (5%, 12%, 18% & 28%) already approved by the GST council. However, the actual fitment of the various goods and services under the above mentioned four GST rates would be known only in mid-May (18 and 19 May) when the GST council meets next.

Under the existing service tax regime, a concession (under the so-called abetment rules) is given to home buyers which reduces the effective service tax rate on under-construction flats from 15 % to 3.75 % (if the value of flat is less than Rs one crore ) or 4.5% (if the value is above Rs one crore). On top of this, the states also levy VAT on under-construction houses which is about 5-6 %, thus taking the entire indirect taxation burden to about 10-11%. However, there is still a big confusion on whether such concessions would continue under the GST regime or not. “If the abatement rules do not apply under the GST regime, the applicable tax rate would shoot up dramatically, thereby increasing the cost of homes,” says Ramesh Nair, CEO & Country head, JLL India.

Source : ET Realty

8th April, 2017

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