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Flexible GST rates for realty

GST Council today has approved transition plan for the new rate structure for real estate residential projects.

Chennai: Ironing out transition issues, the GST Council on Tuesday allowed real estate developers the flexibility to choose between old rates and new rates for incomplete residential projects.

Builders can choose either 12 per cent tax rate with the input tax credit (ITC) facility as before or pay 5 per cent GST without this facility for under-construction projects. In the case of affordable housing projects, they can choose between 8 per cent with tax rebates or one per cent without it, Revenue Secretary Ajay Bhushan Pandey told reporters in New Delhi on Tuesday. The new reduced tax rates will kick in from April 1.

In the previous meeting on February 24, the council had slashed tax rates for under-construction flats to 5 per cent from 12 per cent and affordable homes to 1 per cent from 8 per cent, effective from April 1.

"GST Council today has approved transition plan for the new rate structure for real estate residential projects...From April 1, builders have to choose either of the options for which they will get time," Pandey said. For new projects, the lower tax rates will apply from April 1.

“The proposal of the GST Council to reduce GST rate on under-construction properties will likely have mixed implications for the sector with high-price inventory (such as Mumbai and NCR) benefitting the consumer, though absence of input tax credit impacts overall costing in cities such as Bangalore with lower realisations. However, the lowered tax reduces the differential pricing for under-construction and completed properties, and may prompt changes in consumer behaviour in terms of timing their purchases. This augurs well for retail housing finance volumes and asset quality performance of developer loans in metros,’ finds Kotak Institutional Equities.

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