HALF MEASURES ON GST bugs sector

Created on 13.03.2019 13:59:21
HALF MEASURES ON GST bugs sector

The government has changed the procedure to tax housing projects under construction to make it more simple and transparent and boost the residential segment of the real estate sector. Under the new system, which will kick in from April 1, GST would be levied at an effective rate of 5%, but without input tax credit (ITC) on general residential properties. Against this, under the existing regime, GST is 12% — but with the allowance of input tax credit.

The government will now levy GST at 1% without ITC on affordable housing properties. Against this, under the existing system, GST on affordable housing is 8% — but with the allowance of ITC.

There will not be any issue of passing on the credit for the tax paid on inputs purchased to complete construction, which is termed as input tax credit, under the new system. A general complaint is that developers do not pass the benefit of input tax credit to buyers and that, ultimately, buyers end up paying GST at 12% for general housing and 8% in the case of affordable housing.

Now, as the government has pegged a flat rate of 5% GST, buyers must pay the reduced GST. As developers are not passing the benefits of ITC anyway, the removal of ITC benefit would not affect buyers.

But, developers and consultants argue that passing on the ITC benefit was an issue in old projects, which were sold before the GST was implemented on July 1, 2017, but, that, in the projects launched after this date, they are quoting the price after adjusting for ITC benefits. They say market is so competitive, they have no choice but to pass on the benefit to buyers.

In case ITC benefit is passed on to customers, the net GST a customer pays depends on the price of a project. For the lower range projects being sold between Rs 3,000 per sq ft and Rs 6,000 per sq ft, customers pay between 2% and 5%. Therefore, developers say prices of several housing projects would go up under the new scheme.

HALF MEASURES on GST bugs sector

However, in the case of affordable housing, as the new rate is flat 1%, most of the buyers would be benefitted.

The notification defines affordable housing as a residential house or flat of carpet area of up to 90 square metre in non-metro cities or towns, and 60 square metres in metropolitan cities, costing up to Rs 45 lakh in both cases, which would enjoy 1% GST.

The metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata, and Mumbai (the whole of Mumbai Metropolitan Region).

Jaxay Shah, national president of Credai, said reduction of GST on affordable housing to 1% is a welcome step for the Indian real estate sector and would help achieve the “Housing for all by 2022” mission of the NDA government. It will boost the overall sentiment in the sector, he says.

Niranjan Hiranandani, national president of Naredco, while lauding the decision to cut GST rate to 5% on nonaffordable housing, and to 1% on affordable housing, without ITC, said this is positive and that it would bring big relief to homebuyers. He said that the announcement would enthuse homebuyers to close purchase deals and lend impetus to the affordable housing segment.

He said had the policy kicked in “with immediate effect”, the market would have sold residential real estate units in the current financial year itself but, as it would be effective only from April 1, sales would spike only in the next financial year.

RK Arora, chairman of Supertech Ltd, said the decision to reduce GST on affordable housing projects to 1% would provide the much-needed impetus to the market which is facing severe liquidity shortages.

However, Arora said he was disappointed with the GST council for denying developers input tax credit.

The real estate sector is currently in a very poor shape and needs significant help from the government to finish current projects and grow at a rate which would lift the whole economy, Arora says.

 

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