This is really a big step from Modi government. It will give a huge relief to affordable housing buyers. The Modi government has asked builders not to charge any GST from home buyers as the effective GST rate on almost all affordable housing project is 8 per cent which can be adjusted against the input credit. According to Modi government order, builders can levy GST on buyers of affordable housing projects only if they reduce the apartment prices after factoring in the credit claimed on inputs.
The big development comes after the GST Council, in its last meeting on January 18, had extended the concessional rate of 12 per cent GST for construction of houses under the Credit Linked Subsidy Scheme (CLSS) to promote affordable housing, which has been given infrastructure status in 2017-18 Budget.
The effective GST rate, however, comes down to 8 per cent after deducting one third of the amount charged for the house, flat, towards land cost. This provision is in effect from January 25.
Here are key details of the statement released by Union Finance Ministry:-
– “All inputs used in and capital goods deployed for construction of flats, houses, etc attract GST of 18 per cent or 28 per cent. As against this, most of the housing projects in the affordable segment in the country would now attract GST of 8 per cent. As a result, the builder or developer will not be required to pay GST on the construction service of flats etc. in cash but would have enough ITC (input tax credits) in his books to pay the output GST.”
– “Builders should not recover any GST payable on the flats from the buyers.
– “GST can be recovered from buyers only if builders recalibrate the cost of the flat after factoring in the full ITC available in the GST regime and reduces the ex-GST price of flats.”
The concessional rate of 12 per cent GST was already applicable on houses constructed under three components of the Housing for All (Urban) Mission/ Pradhan Mantri Awas Yojana (Urban) — (i) ln-situ redevelopment of existing slums using land as a resource component; (ii) Affordable Housing in partnership and (iii) Beneficiary led individual house construction/enhancement.
In the meeting last month, the Council extended this tax benefit to CLSS for Economically Weaker Sections (EWS)/Lower Income Group (LIG)/Middle Income Group-1/Middle Income Group-2 (MlG-2) under the PMAY (Urban) programme.
Under CLSS, subsidy is being provided on home loans taken by eligible urban poor (EWS/LIG/ MIG-I/ MIG-II) for acquisition and construction of house. The ministry said now the buyers under CLSS would be entitled to interest subsidy as well to a lower concessional rate of GST of 8 per cent.