Report on gst rate cut on real estate
There is good news for home buyers in the last festive month of the year. GST Council (goods & services Tax) is reviewing over the proposals to GST rate cut on real estate. According to report sources in the council said the positive decision in this regard is expected to be taken during in the meeting that will be held in January.
Once the proposals / schemes are cleared, buying an under-construction apartment and flat will become cheaper. Sources within the fitment Committee of the GST Council that has been engaged on rationalizing the slabs under which commodities are taxed, said that two proposals are into account to supply a rate cut on under-construction flats.
The first proposal could be a fixed down 12 per cent GST rate with full input tax credit (ITC) to the builder. This can build the effective GST rate to be 8 per cent once the input cost of the land is accounted for and reduced.
With this, the govt. will manage to bring down the effective goods & services tax (GST) rate on under-construction flats to 5 per cent for purchasers, whereas builders are going to be forced to promote purchases of construction material from GST-complaint entities.
Currently associate 18 per cent GST is charged on the real estate sector. however once the various input costs like price of land are calculated, the effective rate comes down to 12 per cent.
The fitment Committee is going to be scrutinizing the viability and legal aspects concerned in this. With the 2019 Lok Sabha election ahead, the Modi government wants real elected dividends from the move. The idea is to pass the proposals by the next GST Council meet scheduled in January, in order that its benefits start kicking in before the 2019 Lok Sabha polls.
The government is moving in with the changes for under-construction flats because the builders are stuck with a large inventory of under construction apartments. This can be as a result of consumers favour to choose ready-to-move flats as they’re nearly spared from GST. Lending to the real estate sector has been dry lately. The slowdown in the real estate sector is also symptom allied sectors like steel, cement and construction.
The overall property costs are generally divided into 2 main components – one which is paid to the builder or seller which is 80-85 per cent of the property value. The remaining 15-20 per cent goes to the govt. as taxes.
The ready-to-move-in properties are excepted from GST. Buyers need to only pay stamp duty and registration charges as taxes that comprise 7-8 per cent of the entire property cost.
For the affordable housing sector, the government has provided a GST benefit to its Credit linked subsidy scheme (CLSS) for economically weaker sections, low and middle class home buyers. Beneficiaries of these schemes get interest subsidy and concessional GST rate cut on real estate of 8 per cent.
In fact, to increase sales in this segment, the government has urged developers to not charge any GST from home buyers because the effective 8 per cent GST rate in affordable housing will be adjusted against their input tax credit if opted for.
