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

Can Bangladesh beat India in development race? Here's what economists say

Economy & Policy:

There’s an old theory that as an organism develops, it progresses through the same evolutionary stages travelled by its ancestors. Traditionally, economic development has worked in a similar way. When a country first shifts from agrarian poverty to industrialization, it tends to start out in light manufacturing, especially textiles. Later it masters more complex manufactured products, and finally, it progresses to inventing its own cutting-edge technology. Thus, each country’s development tends to look a bit that of nations that already went through the process.

That certainly seems to describe the experience of South Korea and Taiwan, which reached developed-country status relatively recently. It’s also the path being followed by China. As these countries got richer and their wages rose, low-tech labour-intensive manufacturing industries tended to migrate to countries with cheaper workers.

Recently, one of the biggest beneficiaries of this process has been Bangladesh. The garment industry accounts for more than 80 per cent of the South Asian nation’s export revenue, and about a fifth of its gross domestic product. In 2017, Bangladesh was the world’s second-largest apparel supplier after China, with 6.5 per cent of the market, outpacing neighbouring India despite the latter’s much larger economy.

This economic development path has no doubt come at a real human and social cost -- Bangladesh's workers suffer harsh working conditions and many industrial accidents, including a horrific factory collapse in 2013 that killed more than a thousand people. But overall, the tried-and-true industrialization strategy seems to be working. Real GDP per capita has doubled since the turn of the century, and Bangladesh appears to be on a similar exponential growth path as its neighbour India:


 India, meanwhile, has generally underperformed in manufacturing. The country does have a few bright spots -- for example, it’s now the world’s sixth-biggest auto manufacturer, with an immense factory cluster in Gujarat,and has been increasing its production of smartphones...Read More