A group of state finance ministers (GoM) on Friday decided to recommend a GST rate cut on all under-construction houses to 5%, from 12% at present, and slashing of GST rate to 3% from 8% on \u2018affordable housing projects\u2019. However, the rate cuts would be accompanied by denial of input tax credit (ITC) to the builders. The proposed change in the tax structure for under-construction housing projects is intended to correct the practice of builders not passing on the benefit of reduced tax incidence under GST compared to the previous regime to consumers. It could also give a further boost to affordable housing projects, incentivised by the government. The GoM, under Gujarat deputy chief minister Nitin Patel, was set up last month to analyse tax rates and issues being faced by the real estate sector under the GST regime. A final report on recommendation would be prepared by next week after another round of deliberations, sources said. The GoM proposals need to be approved by the GST Council. Also read|\u00a0Income Tax Alert! Taxmen watching your credit card spending; overuse of cards may attract a tax notice The approach is similar to the one adopted for restaurants, which saw their GST rates cut to 5% without ITC from 18% by the GST Council after widespread complaints that they had raised prices despite the benefit of ITC. Pratik Jain, partner and leader, indirect tax, PwC India, said: \u201cWhile the intention of the government is to provide relief to the end-customer, from a structural standpoint, it should be ensured that the chain of GST credit is not broken. Perhaps, a better approach would be to reduce prevailing GST rate on residential property, say, bringing the effective tax rate down to 8% from 12%, while continuing the benefit of input tax credit.\u201d He added that loss of ITC could lead to increase in the base price, which could raise the hackles of consumers, and realtors may even end up facing investigation of profiteering as has been witnessed with some restaurants. Currently, GST is levied at 12% on payments made for under-construction property or ready-to-move-in flats (18% GST less abatement of one-third towards the value of land) where completion certificate has not been issued at the time of sale. However, GST is not levied on buyers of real estate properties for which completion certificate has been issued as they are subjected to only stamp duty. In the case of affordable housing projects like Jawaharlal Nehru National Urban Renewal Mission, Rajiv Awas Yojana, Pradhan Mantri Awas Yojana or any other housing schemes of state governments, the GST is levied at a lower rate of 8 %. Given the higher tax on inputs, the builders actually pay nil tax on the value they added, but this benefit barely reaches the consumers. Massive investments are being planned in the affordable housing segment; under the Pradhan Mantri Awas Yojana (Urban) itself, the total investments envisaged by 2022 is Rs 3.85 lakh crore. Affordable housing is defined in terms of the cost as well as built-up area. In one of the earlier GST Council meetings, the then finance minister Arun Jaitley had identified tepid growth in the real estate sector as one of the main reasons for less-than-expected GST collection. To spur demand, Jaitley had said the tax rate on residential property needed to be brought down. Prior to GST roll-out, under-construction housing projects attracted 4.5% service tax and state-level value-added tax (VAT) of 1-5 %. Also, inputs used in construction attracted 12.5 % excise duty in addition to 12.5-14.5 % VAT. Besides, entry tax was also levied on the inputs. After adjusting for credits on inputs used, the effective per-GST tax incidence on such housing property was 15-18 %, a quote higher than the current incidence with 12% tax rate and ITC. However, the benefits of this don\u2019t actually reach the consumer. The other ministers in the seven-member GoM are finance minister of Maharashtra Sudhir Mungantiwar , Krishna Byre Gowda of Karnataka, Thomas Isaac of Kerala, Manpreet Singh Badal of Punjab, Rajesh Agarwal of Uttar Pradesh and Goa Panchayat Minister Mauvin Godinho. Apart from Patel and Gondinho, Friday's GoM meeting was attended by Mungantiwar and Badal through video conferencing. Also other state ministers, who are part of the panel, too would be giving their views in a couple of days.