Affordable housing made practically GST free – Govt

The government has cut the GST rate of ‘affordable houses’ covered by the ‘Credit Linked Subsidy Scheme’ to an effective rate of 8% from an effective rate of 12%, and also said that most customers should not have to pay any GST on such flats at all.

The reduction in GST has been made to encourage affordable housing, it added, and together will input credits for GST paid on building materials, should make affordable houses ‘GST free’.

“All inputs used in and capital goods deployed for construction of flats, houses, etc attract GST of 18% or 28%.

“As against this, most of the housing projects in the affordable segment in the country would now attract GST of 8% (after deducting value of land).

“As a result, the builder or developer will not be required to pay GST on the construction service of flats etc. in cash but would have enough ITC (input tax credits) in his books to pay the output GST, in which case, he should not recover any GST payable on the flats from the buyers,” the government said.

The builder can recover GST from flat buyers only if he recalibrates the cost of the flat after factoring in the full ITC available in the GST regime and reduces the ex-GST price of flats, it added.

The GST rate for other houses and construction will continue to be 12% effective. Technically, the rate is 18%, but there is no GST on the sale of land, and therefore, 1/3rd value of any property purchase is considered to be that of the land. As such, the effective GST will be reduced by 1/3rd, making it 12%.

Besides the Credit Linked Subsidy Scheme, three other schemes are also eligible for 8% effective GST. These are slum redevelopment projects, affordable housing projects in partnership and ‘beneficiary led individual house construction/enhancement’.


Credit Linked Subsidy Scheme (CLSS) is a new scheme introduced by the current government two years ago.

Under this, buyers of flats of up to a certain size can get a subsidy of up to around Rs 2.6 lakhs on the interest cost of their home loan.

The scheme can be availed by anyone as long as their household income is less than Rs 1.5 lakh per month.

The scheme divides beneficiaries into four categories, based on their income levels: EWS or economically weaker section, LIG or low-income group, MIG 1 or Middle Income Group 1, and MIG 2.

The scheme is available for both new houses and for the addition of rooms, kitchen, toilet etc.

The carpet area of houses constructed under this component of the mission would be up to 30 square meters for EWSA, 60 Square Meters for LIG, 120 sqm for MIG I and 150 Sqm for MIG II.

The scheme is supposed to help real estate companies tide over the current slow market conditions.