Explainer: How GST cut on under-construction houses will help home buyers

Economy & Policy:

The Modi government announced a cut in the goods and services tax charged on sales of residential properties under construction as it looks to stimulate the economy by driving up consumption.
The Goods and Services Tax Council, comprising central and state finance ministers, announced that the new rate will be 5 percent, down from 12 percent, on all new housing projects except those that are classified as af fordable housing. The council also decided to slash the tax rate on affordable housing projects to 1 percent from 8 percent.However, builders will not be able to claim input tax credit (ITC) under the new GST rates. The new rates will be applicable from April 1.

The Council also made changes in the definition of affordable housing carpet area and cost. Properties costing up to Rs 45 lakh will now be considered as affordable. Houses with a carpet area of 90 square metre in metro cities and 60 square metre in non-metro cities will be considered affordable, the Council said.

Properties, where the construction has been completed, attract stamp duty, not GST. Hence, ready properties that have received the occupancy certificate (OC) do not attract GST.

What does this mean for home buyers?


 The GST Council’s decision will benefit buyers who are currently on construction-linked payment schemes. Data from property consulting form shows there are 5.88 lakh under-construction homes lying unsold in India's top 7 cities. Of these, 34% are priced below Rs 40 lakh alone. With affordable housing now being defined within Rs 45 lakh budget, more properties qualify for this ‘sweet spot category. The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range...Read More