The GST Council met on Sunday, 24 February 2019, and decided to lower the tax rate on under-construction housing properties to 5% from the initial 12%. Tax rate for affordable housing has also been slashed to 1% from the initial 8%. The new rates will be effective from 1 April 2019.

Currently, GST is imposed at 12% on payments made for under-construction homes or ready-to-move in properties where the completion certificate has not been issued at the time of sale. But builders won’t be able to claim input tax credit (ITC) under the new GST tax rates.

The GST Council also made changes in the definition of affordable housing. Properties with a carpet area measuring 60 sq mt in metro cities and 90 sq mt in non-metro cities and costing up to INR 45 lakhs will now be considered as affordable housing.

What is in it for home buyers and the real estate sector?

• This decision will benefit the buyers who are on the construction linked plan (CLP). Under the construction linked payment plan, the bank allows installments to the house builder on their behalf for pre-decided construction milestones. As many as 5.88 lakhs under-construction homes are lying untouched and unsold in India’s top seven metro cities. A relaxation in GST tax will mean an increase in sale of homes under INR 45 lakhs.
  
  
• Further, demand for purchase of residential properties will increase owing to the lower tax burden on the middle class.
  
  
• The real estate sector is likely to get a boost and provide relief to the under-construction segment that has been witnessing a low sales level in the past few quarters.
  
  
• The government is also taking steps to eliminate the barriers for buyers who want to invest in real estate.  There will most likely be a more balanced out sale of inventory between under-construction and ready-to-move in apartments.
  
  

In the forthcoming GST Council meeting on March 10, it will be decided if commercial spaces in residential complexes that are used for shops, will also get tax benefits. It will also consider if other changes like lease premium and FSI (Floor Space Index) transfer will be impacted by GST.