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GST council decided to levy 1% GST on affordable housing and 5% on premium housing, to boost real estate sales.
- GST rate on new and under-construction affordable housing became 1%.
- New and under-construction housing not coming under the affordable category faces 5% GST.
- Residential projects that were incomplete on March 31, 2020, are considered “ongoing projects.”
- The GST council clearly defined “affordable housing.”
Before April 1, 2019, a single 12% GST rate on houses was applicable to standard under-construction properties. The effective rate was 8% on affordable housing that had not received Completion Certificate during the sale. GST was not relevant for properties that had obtained Completion Certificates. Builders could avail the benefit of Input Tax Credit (ITC).
What changes were made on the tax structure?
On February 24, 2019, the GST Council created a new policy that came into effect from April 1, 2019. The revised tax structure includes:
- GST rate of 1% for new as well as ongoing affordable housing projects
- GST rate of 5% for new and ongoing housing projects that do not fall under the affordable category
Builders opting for this new tax rate system will not be able to claim ITC benefits. Moreover, developers will have to follow the condition that 80% of procurement must be from registered dealers only.The promoters of ongoing residential projects got a one-time option to continue paying taxes under the old GST rate on houses with ITC. However, builders whose projects started on or after April 1, 2019, had to pay taxes at the revised rates mandatorily.GST will not be levied on houses for which Completion Certificates have been issued at the time of sale.
What is affordable housing?
On its meeting on February 24, 2019, GST Council defined affordable housing as:
- Houses in metropolitan cities (Delhi-NCR, Kolkata, Chennai, Mumbai, Hyderabad, and Bangalore) having carpet area up to 60 square meter
- Houses with carpet area up to 90 square meters for towns and non-metro cities
- Having gross value up to ₹45 lakhs for both metros and non-metros
The council also decided to consider any project with up to 15% commercial space like clubs and restaurants or shopping arcades as a residential property.
What is meant by an ongoing project?
The council considers any project for which construction began, that is, breaking up the earth for building the foundation started on or before March 31, 2019, as an ongoing project.The reduced GST rate on houses is expected to cut housing costs, helping customers in buying bigger homes.Ready to make the most of your money? Start your tax planning journey now!
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.