The GST Council which consists of members from all the political parties has given a good hint for the Indian real estate market. The council is planning to reduce GST [Goods and Services Tax] on the purchase of under-construction flats and houses.
According to the sources, the GST Council is planning to decrease GST on such purchase of property by 5 percent and this decision is likely to be taken in the Council’s next meeting which is scheduled to take place next month.
At present a person is required to pay 12 percent Goods and Services Tax [GST] to purchase an under-construction home/flat. The same is also applicable to the buyers of a ready-to-move-in residential property where the completion certificate is not being issued at the time of sale.
But, the Goods and Service Tax is not applicable if the homebuyers are provided with the completion certificate at the time of sale.
According to the sources, some developers are not forwarding the advantage of input tax credit (ITC) to the clients. The officials were quoted saying, one of the proposals before the Council is to lower the GST rate to 5 percent for builders who purchase 80 percent of inputs from registered dealers.
The officials also said that some developers are currently paying in cash for the inputs for construction but are not forwarding them to the homebuyers and thus the council is trying to make a formal channel tunnel for the same.
There is 18 percent GST on major construction materials, capital goods and input services that are used for the construction of dwelling units and the goods and Service tax is 28 percent on cement.
Earlier, the under-construction residential projects have 4.5 percent GST and a VAT [Value Added Tax] ranging between 1-5 percent. This tax varies from State to State and the inputs used in construction had 12.5 percent excise duty in addition of 12.5-14.5 percent VAT.
Apart from these taxes, entry tax was also applicable on the inputs.
While addressing the press after the GST Council meeting, Finance Minister Arun Jaitley had said that developers have the option to adjust some portion of the 12 percent GST against the taxes paid on inputs like cement which attract 28 percent levy.
Jaitley was quoted saying, the potential homebuyers feel they are not getting benefited under GST. Certain proposals have come before the Council and the law and fitment committee will look into the matter and the matter will come up in the next council meeting. There was a total consensus that something needs to be done.
The Goods and Service tax is implied at 8 percent on the affordable housing projects like Jawaharlal Nehru National Urban Renewal Mission, Rajiv Awas Yojana, Pradhan Mantri Awas Yojana and other housing schemes of the State Governments and the developers can adjust the same by accumulating the Input Tax Credit.
It seems like the Indian real estate sector is going to receive a gift from the Government on the year-end.