The Impact of GST Cut on Indian Real Estate

GST (Goods and Service Tax) was passed in the parliament on 29th March, 2017. The Act came into effect on 1st July 2017. 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. On February 24, 2019, the GST council sliced tax rates for under-construction flats to 5% and affordable homes to 1%. Currently, the GST is levied at 12% with input tax credit (ITC) on payments made for under-construction property or ready-to-move-in flats, where completion certificate is not issued at the time of sale. For affordable housing units, the existing tax rate is eight per cent.

Following are the impacts that are expected from the GST cutback:

• Benefit for the homebuyers: One of the biggest benefit that the homebuyers are ensued with the GST slash is the fact that they would now have to pay an upfront GST. 1 per cent for affordable houses and 5 per cent for non-affordable houses without worrying about getting back the input tax credit from the developer. The billing systems are expected to become more transparent.
• Change in the definition of affordable housing: The definition of affordable housing now allows apartments of 60 sq m for metro cities and 90 sq m for non-metro cities, with a cap on the value of the asset at Rs 45 lakhs. This will bring more residential apartments across Tier II and Tier III cities under the ambit of affordable housing.
• Good news for landlords: Those who are earning a rental income by letting out their properties for residential use will not be taxed under the GST. However, those who have given their premises on rent to be used for commercial or industrial purposes will have to pay an 18 per cent tax in case they are earning over Rs 20 lakh annually.
• Improvement in developers in metros: Customers usually wait for under-construction projects to be completed to avoid the burden of GST. This increased the financials of under-construction projects that were constrained due to weak demand and stable real estate prices. The GST slash has benefitted both the buyers and developers as more buyers would be investing in under-construction properties that in turn improve the financial health of the developers.

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