A group of ministers has recently recommended 5% GST for under construction properties and 3% GST for affordable housing, which has been welcomed by both industry experts as well as developers.
A group of ministers (GoM), led by Gujarat Deputy CM Nitinbhai Patel, has recently recommended 5% GST (goods and services tax) for under construction properties and 3% GST for affordable housing, which has been welcomed by both industry experts as well as property developers as they believe that this proposal, if implemented, will give a boost to the real estate sector.
It is a known fact that during the last two years since its implementation, applicability of GST has been one of the key factors among a whole lot of consideration points in a home buyer’s decision-making list. Ready-to-move-in apartments, which have received their occupation certificate, attract no GST. This is a significant difference vis-à-vis under-construction apartment units or ready projects that are yet to receive their occupation certificate, which attract a GST of 12%. In the case of affordable housing units, this difference is to the tune of 8% since the GST for under construction affordable housing units is at a concessional rate.
“In fact, when GST was formalized, it was looked upon as a panacea for all the real estate tax woes and was expected to provide some impetus to the sector. Ideally, the 12% GST on under construction projects should be partially offset by the higher taxes paid on inputs by builders and the effective GST on the homebuyers should be much lesser. However, most builders are not passing on the input tax credit to buyers and hence the pain remains,” says Divya Seth Maggu, Associate Director, Valuation Services at Colliers International India.
There are examples of builders, especially in the affordable and low-ticket size segment, advertising their willingness to absorb the GST as a promotion to enhance sales. However, those are primarily indirect discounts to the apartment landed cost.
“There have been complaints that builders are not passing on the input tax credit benefit to consumers by way of reduction in price of the property after the rollout of GST. In a move to combat this, GoM has recommended a reduction of GST from 12% to 5% for premium housing and to 3% from 8% for affordable housing. However, the rate cuts are proposed to be accompanied by denial of input tax credit to builders. While the intention of the government is to provide relief to the end customer, it is important that the chain of GST credit is not broken. Builders are hopeful that the input tax credit would not be taken away since this may result in overall costs going up for the developer,” says Maggu.
Whatever be the case, builders and property consultants have welcomed this move, saying that apart from benefiting the sector, this will be good for home buyers also, provided input tax credit is not removed for builders.
Ankur Dhawan, CIO, PropTiger.com, says, “Reduction in GST rates to 3% and 5%, respectively, in affordable and other categories will be a good news for home buyers, especially the ones in states where earlier VAT was charged, e.g. Maharashtra, Haryana and Karnataka. Such buyers were paying more than 5% in service tax and VAT, and will be paying only 5% in the GST regime. However, if input tax credit is removed for developers, then it is negative for them as well as the government. This is a regressive move as invoice chain will be broken and developers will have to pass on tax to the end customers.”
Pradeep Aggarwal, Founder and Chairman, Signature Global, also believes that the proposal of the reduction of GST to 3% for affordable housing will be a total win-win situation for the real estate sector, especially for the affordable housing sector. “With the incorporation of this move, sales in the realty market are anticipated to rise and bring in cheers for the sector. However, it is very important to keep in track the issues and challenges that are being faced by the real estate sector under the GST regime,” he says.
Some developers feel that if the GST rate is cut, then that will be the right time to invest in property. “Understanding the dynamics of the current market, it’s important that we developers offer the buyers what they actually need. The mass buyer is always in the affordable segment. Hence we have introduced exclusive schemes for them. With expected GST rate cut, I am sure the demand will increase. We feel that now is the right time to invest in the realty sector,” says Ashok Gupta, CMD, Ajnara India.