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The GST rate for under-construction properties has been reduced to 5%, which is likely to be a major boost to the ailing real estate sector in India. The Finance Minister stated that this move will make housing more affordable to the aspirational class, neo-middle class and middle class. The GST Council has reduced the tax rates significantly and this is applicable to the affordable as well as non-affordable housing segments. The ministerial group had previously come up with a set of recommendations. The Council, after scrutinizing the same, agreed to approve the reduction in tax rates for the real estate sector. The decision was taken in the 33rd GST Council meeting. Previously, the tax rate on the real estate sector was 12%. The GST Council has also reduced the GST rate for affordable homes, which was previously fixed at 8%.
The revised rates of GST will be applicable from 1st April, 2019. However, it will not be possible for the developers to claim the ITC (input tax credit) after the rate of tax is reduced in the real estate sector. As a result, the issue related to the builders not passing on the ITC benefits to the homeowners to become irrelevant. Besides, unutilized ITC was added to the overall cost of the project in the past. As per the new regulations, this will be removed, making the prices more affordable to the homeowners. The real estate sector, which has been struggling over the last few years, will get a new lease of life. The sales figures are likely to increase in the coming months.
The definition of affordable housing was also revisited by the GST Council. The ambit of the segment was expanded on a twin basis. In the metro cities including Mumbai MMR region, Delhi NCR region, Bengaluru, Kolkata, Chennai and Hyderabad, the affordable housing segment will encompass all properties that come under the carpet areas of 60 Sq. Mts. Their prices may range up to INR 45 lakhs. In the non-metro cities, the affordable housing sector will include properties are within 90 Sq. Mts. And cost up to INR 45 lakhs.
It was also decided by the GST Council, that the immediate tax on development rights, like lease (premium), JDA, TDR and FSI will be exempted only in the case of real estate, where GST is payable. An officers committee will be working on the finer details of the scheme. This will, then, be approved by the GST Council. Problems like cash flow, which is now common in the real estate sector, can be addressed with these exemptions. As a result of the changes, the builders will benefit from an easier tax compliance and tax structure. This is a positive development for the real estate sector. The industry is likely to benefit from the move in the coming months.
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