Properties under construction have historically has faced multiple issues under Good and Services Tax (GST) reign. These problems range from the pricing of properties to non-passing of Input (ITC) to ambiguities concerning GST charged. The bleak response at the time of pre-launch or during construction was due to multiple factors- regulations being one of them.
The recently concluded 33rd Council meeting rationalised GST rates in real estate, bringing smiles to many stakeholders, especially the first-time home-buyers! These changes will take effect from 1st April 2019 post the notifications/circulars are released on the 10th March 2019.
To begin with, the Council has eased the GST rates on under-construction properties. GST rates were reduced from 8% to 1% and 12% to 5% for affordable and regular segments of residential housing, respectively.
However, builders now cannot claim Input Tax Credit (ITC) on the raw materials used in construction. In turn, there will arise no need for passing on the benefit of ITC to customers. Nevertheless, there may be a marginal rise in the pricing of houses due to the unclaimed ITC forming part of the costing.
The term affordable housing has now been defined precisely under the GST law. The price of the houses must be Rs.45 lakh or below while the carpet area must be up to 60 sq metres (645.84 sq feet) for those located in metro cities and up to 90 sq metres (968.76 sq feet) for those in non-metro cities.
The Prime Minister Awaz Yojana (PMAY) and Cash Linked Subsidy Schemes (CLSS) lays down the criteria for affordable housing, i.e., up to 120 sq metres (1292 sq feet) for MIG1 and 150 sq metres (1,614 sq feet) from 110 sq metres for MIG2 category.
The above scheme of tax reduction can be related to the composition scheme, but with more relaxations.
On the other hand, the implementation of the Real Estate Regulation Authority (RERA) rules since 2016 across many States have also helped regularise the operations in the sector and directed the builders to take the bona fide and transparent route for pushing business.
The changes brought about by the government was to give an opportunity of a level playing field for all the stakeholders in the sector that currently sees a high inventory lying unsold. Transition rules will be the key thing to look out for in the coming week, to understand what could be implications of the changes to the existing housing projects.