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GST Council May Consider 5% GST on Under-Construction Homes

Tooba Maher
Tooba Maher

The GST Council may consider lowering Goods and Services Tax on under-construction flats and houses to 5 % in its meeting next month, an official said.

However, the GST is levied at 12 % on payments currently, made for under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale.

But, GST is not levied real estate properties for which completion certificate has been issued at the time of sale.

According to an official, “This 12 percent GST rate ideally would have been partially offset by way of taxes paid on inputs by builders. Hence the actual incidence of GST on under-construction home buyers would have been around 5-6 percent.”

The official further said, “Builders are not passing on the input tax credit benefit to consumers. One of the proposals before the Council is to lower the GST rate to 5 percent for builders who purchase 80 percent of inputs from registered dealers."

“Currently, builders are paying for the inputs for construction in cash and are not passing on benefits to consumers. Therefore, there is a need to bring them to the formal channel. Major construction material, capital goods and input services used for construction of flats and houses attract 18 percent GST, and cement attracts 28 percent tax,” official said.

Under-construction housing projects attracted 4.5 percent service tax and a value added tax of 1-5 percent depending on the state, prior to GST rollout.

Even inputs used in construction attracted 12.5 percent excise duty in addition to 12.5-14.5 percent Value-Added Tax. Entry tax was also levied on the inputs. After adjusting for credits on inputs used, the effective pre-GST tax incidence on such housing property was 15-18 percent.

The Finance Ministry has time and again asked real estate dealers to pass on GST rate cut benefits to buyers, but to no avail.

Finance Minister Arun Jaitley while Briefing reporters after the GST Council meeting on Saturday, said that builders can adjust some portion of the 12 percent GST against the taxes paid on inputs like cement which attract 28 percent levy.

He further added "The potential homebuyers feel they are not getting benefited under GST. Certain proposals have come before the Council and the law and fitment committee will look into the matter and the matter will come up in the next council meeting. There was a total consensus that something needs to be done."

In case of affordable housing projects like Jawaharlal Nehru National Urban Renewal Mission, Rajiv Awas Yojana, Pradhan Mantri Awas Yojana or any other housing schemes of state governments, GST is levied at 8 percent, which can be adjusted by builders against its accumulated input tax credit.

The Finance Ministry had earlier this month said that for such affordable housing projects, after offsetting ITC, the builder or developer in most cases will not be required to pay GST in cash as the builder would have enough ITC in books of account to pay the output GST.

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