The recent update has made quite an uproar in the property marketing of late. Will this maneuver bring in the silver lining in the residential property business or there are still some hidden innuendos?
Let’s dig in the real facts behind the recent realty rules.
According to the revised tax rate, under construction homes are likely to attract 5% of GST whereas the new effective GST rate for affordable homes would be just 1%. Likewise, the Council has removed the tax credit benefit on inputs such as cement, steel, and paint etc contemplating that this profit gets restricted to the builders only.
This is another major push to the affordable housing sector. Homes up to a carpet area of 60 sq mtr. in metro cities, and up to a carpet area of 90 sq mtr in non-metro areas will come under this radar if the price is within Rs. 45 lacs cap.
“Presently, affordable housing attracts 8% effective GST rate, whereas for standard housing apartments it’s 12%. The twist is that the revised rate rules out any Input Tax Credit benefit to the builders. Builders will be continuing paying GST on the purchased materials and services ranging from 18% to 28% of GST which will add the total project cost, resulting in hike in basic selling prices. However, no relief is being granted on the tax rate on commission/brokerage payments, remaining same as 18% inspite of white paper representation by NAR India to reduce the same. ”- said Mr Mahesh Somani, The Chairman - National RERA Committee, National Association of Realtors (NAR), India and Vice President of RECA Kolkata.
He further added, “At present ITC liability of the builders are ranging in 8-12% as the case may be. The complete waiver of ITC is set to escalate the base price of the housing projects (both affordable and standard units) in the coming days.”
Clarity is still awaited on commercial properties (fully or partly commercial)
Housing materials and correlated services attract 18% to 28% tax slab. The GST output liability of 8% barely involves any cash effluence. On the other hand, 1% taxability on the affordable housing sector without any ITC benefit is mandated to be payable in cash which again will be collected from the end-users by the developers. This scenario is slightly different for the premium housing segment where materials and services cost comprises a very low component of the total project cost. Here also the effective tax rate of 12% involves a cash outflow, which will obviously be passed on the consumers.
“However, what will happen to the exisiting housing projects where apartments have already have been booked and part payments have already been received, on these projects, builders have already taken the input tax credits, the ministry will soon issue a clarification note on the same as builders/consultants/home buyers are confused on the same,” he added.
Therefore, buyers are advised to have an in-depth GST knowledge/market analysis before putting their hands in to realty investment. Consulting with a professional realtor/consultant would definitely help the buyers to crack a profitable deal.
By LNN (Liyaans News Network)