GST rates cut to 1%-5% on under-construction real estate properties

The government has cut the Goods and Services Tax rate on under-construction estate properties to 1% from 8% for affordable housing, and to 5% from 12% on non-affordable housing projects.

In both cases, the buyer cannot take advantage of input tax credits — the GST already paid by the builder on various expenses incurred in the construction.

Completed projects are already exempt from the tax.

For the purpose of calculation of the rate, the definition of affordable housing as given by the Reserve Bank of India will be used.

To qualify as affordable housing, the total value of the sale must be less than Rs 45 lakh, and the property must itself have a carpet area of only up to 60 square meters (646 sq ft) in metros and 90 square meters (969 sq ft) in non-metros.

“You can comfortably make a two-bedroom apartment in this (area),” Cabinet Minister Arun Jaitley said. He said 90 square meters of carpet area corresponds to super built-up area of 1,200-1,300 square feet.

The purchase must be made by registered dealers — a provision put in place to prevent the use of black money in such transactions.

The new rates will come into effect from April 1.

The move is likely to help support the struggling real estate sector in the country.

“This will help the capital flow of the sector as people were otherwise waiting for the projects to be completed [for purchasing],” Jaitley added.

Jaitley also said that the new rule addresses concerns about real estate companies not passing on input tax credits to buyers.

Since the current scheme — 1% and 5% — are applicable only on sales where input tax credits are not taken, buyers can ask for this scheme and don’t have to worry about whether the real estate company provides them the requisite documentation for claiming input tax credits.

The real estate sector has seen a drying up of demand, capital and activity in general in the last three years due to prices that are out of the reach of most Indians, a slow down in the overall economy, as well as the imposition of tougher regulatory requirements such as registration with a Real Estate Regulatory Authority or RERA.

Lakhs of apartments are lying unsold in India’s top cities due to slow demand.

Today’s decision “will be a milestone in the push to ensure that every family gets their own house,” Jaitley added.

Under India’s tax laws, any real estate property with a completion certificate is fully exempt from GST, as are resales.