GST Rate Cut to Pave Way for Affordable Housing

GST Rate Cut to Pave Way for Affordable Housing

The 33rd meeting of the Goods and Services Tax (GST) Council chaired by Finance Minister, Arun Jaitley summed a major change in the GST rates for under-construction housing projects.

From 12 percent, the GST has now been brought down to 5 percent for under-construction houses and form 8 percent to 1 percent for affordable housing. The revised rates will be effective from April 1, 2019. The major changes have been brought to boost the real-estate market and let more people realise their dream of buying a home.

Notably, the ever-growing real estate sector contributes nearly 5% in the country’s GDP and is acknowledged as one of the leading employers, providing many a far-fetching career. However, the sector falls short in terms on certain macroeconomic conditions and fiscal policy decisions. GST being the subsume of multiple indirect taxes has simplified the tax compliance and minimised the chaos of double/triple taxation, but with the significant percentage as an accumulated number, it had restrained many buyers. With the reduction in GST rate, many home buyers would find the new rates in consonance with their budgets. But the ITC (Input Tax Credit) elimination would aid in twisted price rise.

This major shift in policy aims to elevate the demand for residential avenues, proving to be a major plus in Government’s housing initiative ‘Housing for All’ by 2022. But considering the scenario, it might be a pompous elevation as balancing the tax/cost ratio will end up burdening the consumer. Analysing it closely, the provisions introduced will make it harder for the developer to bring in an expected reduced cost. Government has clearly stated that a significant percentage of goods have to be procured by a builder from a GST registered dealer which adds up to the imbalance between the demand- supply chain. Although, it is prevalent that realty sector has been going through a rough patch and the reduction aims at elevating the given market position, but such stimulation is not the apt solution rather it might bring along covered complications.

This decision will notably give the right boost to the demand for under-construction apartments, as people were longing to invest in the completed projects which disrupted the money flow into the real estate sector.

Impact on real estate market

Diving deeper with the effect, it is stated that the rate cut may come across as attained affordability but it may result only in a marginal reduction in the cost rather in some cases it might make homes even more expensive. Explaining the computation, when GST was at 8% for affordable homes the selling price of the apartment was balanced by adjusting the ITC. But with its elimination, the base price is bound to tamper the final costing, leaving the homebuyer in an equally dire situation. The cost of construction and rate of tax earlier with the input credit surpassed the tax payable, which will not be the case now.

Analysing the move, it is prevalent that the economy aims to pull out India’s real estate sector out of the prolonged slowdown but will so be the case?

Source : 99Acres

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