The new GST rule for home buyers- A refreshing breather

Real estate sector had recently become the antithesis of the power sector in India in terms of the supply-demand dynamic. With fewer takers to the excess supply, there was a thud needed to wake the investors up. And a thud it is! In a recent and pathbreaking decision by the GST council, the GST rates on real estate have been slashed.

Here are some quick takeaways-

What is the change in rates?

Real estate projects in India, post the introduction of “Pradhan Mantri Aawas Yojana”, divide themselves into two types Premium/non-affordable and affordable. The new policy cuts down the GST on the former from 12% to 5% and from 8% to 1% for the latter. While the earlier GST rates were inclusive of input tax credit (ITC), the new rates are not and will come into effect from 1st April 2019.

ITC is a form of subsidy provided to the builders by the Government on the raw materials used for construction, like steel, cement etc. The same credit is supposed to be passed on to the buyers at the time of selling of the flats by subsidising the property rates. Now, with the new GST rate, the ambiguity of passing on the ITC remains diluted.

What are my benefits?

For starters, you are going to pay less! Isn’t that good news? Also, this step mandates the builders to procure materials majorly from the GST-registered dealers only which also reduces the amount of “only cash” transactions involved in some cases.

The GST council also took it upon itself to re-define affordable housing in terms of both area and price. The new definition of an affordable house is “any flat costing up to Rs 45 Lakh and measuring 60 sq. Metres in a metro city and 90 sq. Metres in a non-metro city carpet area”, as quoted by the GST Council Meet last month. This clears the air around affordable housing significantly and might leave you with more options to choose from.

Since GST does not apply to projects that have obtained their CC (completion certificates), buyers would initially tend to wait for the completion of the project. This might see a shift in attitude now that the GST for under-construction properties has been slashed.

 

This decision could not have been announced at a better time when new trends like smart homes, micro markets, NRI investments etc. are on the rise. Also, the affordability of middle-class metro residents seems to be seeing an upward trend. The GST rate cut has hit the iron while it was hot. We, at Emaar India, are very optimistic about the effect this decision will have on the real estate market. Exciting times ahead!

Sources:

https://realty.economictimes.indiatimes.com/news/industry/gst-rate-cut-expected-to-give-realty-stocks-a-big-booster/68145234

https://www.business-standard.com/article/economy-policy/homes-to-get-cheaper-as-gst-on-under-construction-properties-slashed-to-5-119022400673_1.html