SYNOPSIS

GST rate for under-construction houses has been reduced to 5 per cent.
GST rate for affordable housing has been reduced to 1 per cent.
Reduction in rates is expected to lower cost of housing.
However, builders have the option to pay the old rates with ITC benefits.
Affordable housing has been redefined (carpet area of less than 60 sq. meters in metros; less than 90 sq. meters in non-metros; and at a cost of up to Rs. 45 lakh).
Fully constructed houses that have received completion certificates will not face GST.

The Goods and Services Tax (GST) Council, in its 33^rd meeting, announced reduction of GST rates for under-construction houses to 5 per cent, and 1 per cent for affordable housing with effect from 1^st April 2019¹. This change is expected to bring about a reduction in cost of housing for prospective buyers.

What is changing?

After this change, the GST rates for affordable homes would reduce from 8 per cent to 1 per cent and for other homes, it would reduce from 12 per cent to 5 per cent. Both these rates are without input tax credit (ITC)². In the subsequent meeting (34^th meeting) of the GST council held on March 19, 2019, it was decided that builders can choose between higher rates with ITC on raw material or lower taxes without any benefits extending to unfinished projects. This means builders can now decide if they want to pay 8 per cent for affordable houses with tax rebates or 1 per cent without the rebate; in case of other homes, 12 per cent with ITC benefits or 5 per cent without any tax rebates. It should be noted that this option can only be exercised once where construction and booking have both been started prior to April 1, 2019, but not been completed by March 31, 2019.³

GST council defines affordable housing

The GST Council has also altered the definition of affordable homes. Affordable housing now refers to a house with a carpet area of less than 60 sq. meters in metros, and less than 90 sq. meters in non-metros, and at a cost of up to Rs. 45 lakh⁴. Metro cities include Bengaluru, Chennai, Delhi-NCR (Delhi,Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad), Hyderabad, Kolkata and Mumbai (Mumbai Metropolitan Region). This simply implies that more premium budget properties in bigger cities (like NCR and MMR) will now fall in the affordable category, benefitting the buyers. Fully constructed houses that have received completion certificates will not face GST. GST will be applicable to houses that have been constructed, but not yet issued completion certificates⁵.