Hyderabad: The Goods and Services Tax (GST) Council in its last meeting cleared a transition plan to implement lower GST rate of 1 per cent in the case of affordable houses and 5 per cent on under-construction units. Experts say the move will bring in transparency to developers in opting for the preferred tax structure from April 1 onwards between the old and new rates. It will also bring in savings for home buyers.
The Council revised the rate for under construction units (without input tax credit (ITC)) from 8 per cent to 1 per cent for affordable housing projects costing up to Rs 45 lakh. For other under-construction properties, the rate has been reduced from 12 per cent to 5 per cent without ITC.
Credai National president Jaxay Shah told Telangana Today, “The government has taken all precautions to ensure a smooth and easy transition to the new regime of rates, and allowed the option to follow the existing rates for ongoing projects. Real estate has relatively a long product life cycle of seven years on an average compared to other sectors. The sector always needed a different treatment and support system. Real estate sector has embraced the RERA regulations and companies are gradually seeing improvement in business in the last two quarters. The revision in GST rates is a fair move for both developers and home buyers.”
Home buyers in different cities will experience different rate impact based on the land cost. In Mumbai, land will mostly constitute about 60 per cent of the overall property cost, land cost accounts for 40 per cent in Hyderabad while in Kochi it will be around 30 per cent. Benchmarking the rate impact on buyers may not be possible for this reason, Shah explains.
C Shekar Reddy, former national president, Credai said, “The GST revision is aimed at tax neutrality. There will be increased transparency for home buyers as they will know what rate option a developer is choosing post April 1.”
Reddy explains, “In the initial GST rate that was fixed for real estate sector, of the 18 per cent GST, 6 per cent that is one-third was meant for land abatement. In a property worth Rs 1 crore, the land abatement cost came to Rs 33 lakh. But it was an inappropriate calculation as land rates varies for each city and 6 per cent meant more for some cities and less for others. For Mumbai, land abatement cost component will be high as the land cost is high compared to any other city in the country. With the current revision, home buyers in cities where land cost is high, will be more beneficial and vice versa. Best relief for home buyers could have been the case where there was no tax for properties up to Rs 1 crore. GST criteria could have been different for RERA registered developers.”
Joydeep Ponugoti, director, Manbhum Construction Company said, “The move is defintiely going to help us as a company as we are given two options. We will opt the old rate for projects where the construction has started 12-18 months ago and the new rate for projects that have started 2-3 months ago. As the buyers will be able to make some savings with the rate revision, we will see sales volumes going up in the future.”
Anuj Puri, chairman, Anarock Property Consultants, said, “The new GST move has given real estate developers the choice to either opt for the old rates and the accompanying input tax credit (ITC) benefits, or else to adhere to the new reduced GST rate of 5 per cent without ITC. While not exactly ground-breaking, it is indeed an intelligent move by smart play by the incumbent government.”
For developers, the new move will be beneficial. However, developers choosing to go with the second option of new GST rates may not be able to hike property prices in the immediate future, Puri viewed.