The reconvened meeting of the 33rd Goods and Services Tax (GST) Council on Sunday lowered GST rate for under-construction housing to 5 per cent (without input tax credit) from present effective rate of 12 per cent (after one-third abatement of land). For affordable housing, the GST rate was reduced to 1 per cent from 8 per cent.
Currently, GST is levied at 12 per cent on payments made for under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale. GST, however, is not levied on buyers of real estate properties for which completion certificate has been issued at the time of sale.
This move will offer a push to the demand in the under-construction segment, which has been suffering from low sales levels for several quarters. The elimination of input credit tax benefit may hit profitability for the supply side; however, the potential demand generation as a result of this move will far outweigh any negative aspects leading to greater sales numbers and revenues.
According to Knight Frank, the reduction in GST can potentially reduce the buyers’ payout by 6% – 7% on the overall purchase, depending on the category. The consequent accelerating sales could bring down the unsold inventory, which has been afflicting the real estate sector.
The Council meeting through video conferencing had remained inconclusive on Wednesday and was adjourned to meet again today as some states asked for detailed discussion in the form of a physical meeting.
Some states had then cited possible revenue loss, valuation of land and sourcing norms for real estate developers as the contentious issues in lowering the GST rate on residential housing.