The government has reduced Goods and Services Tax (GST) on the purchase of houses bought through the credit-linked subsidy scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY), from the existing rate of 12% to 8%.
This is also applicable upon units in a project qualified for infrastructure status. This is expected to push the “Housing for all by 2022” programme of Prime Minister Narendra Modi.
The CLSS scheme under PMAY is defined such that most first-home buyers can avail the benefit. Under this, a first-home buyer with a monthly household income of up to Rs 18 lakh per annum can avail a benefit of up to Rs 2.67 lakh in buying a house or flat of up to 150 sq metres (1,615 sq ft) in carpet area.
The taxes will be levied at buyer-specific rates. Those who qualify and avail benefit under CLSS will pay GST at 8% while those who do not qualify will continue to pay GST at 12% for the same house.
The tax benefit has also been extended on the purchase of a housing unit in an affordable project which has been given infrastructure status (that is projects where all the units are less than 60 sq metres (646 sq ft) in carpet area. The first-home criteria on a buyer to avail the benefit will not apply in any project that has been granted the affordablehousing tag. Whether a buyer gets the CLSS benefit under PMAY or not, the GST will be levied at 8% if he buys a house in an affordable housing project.
The decision will give a push to the real estate sector, especially affordable housing, as he prices will fall by up to 4%, GetamberAnand, chairman of Credai said.
The cap on the size of housing unit to avail the benefit under CLSS is 1,615 sq metres in carpet area, which is equivalent to around 2,200 sq ft of built-up area. This will cover most of the 3BHKs in the country, particularly in metro cities, Anand said.
At the same time, the cap of Rs 18 lakh on household income to qualify for the benefit is also sufficiently large to cover most of the first-home buyers. But as this benefit is limited to first-home buyers alone, a large number of homebuyers who buy a second house in their city of employment may not be able to avail of this benefit.
ParveenJain, vice-chairman of Naredco, said the decision would prove to be a boon for the masses and for the rapid growth and development of the sector furthering the cause of “Housing for all by 2022”.
HOUSING FOR ALL BY 2022!
GST is cut on purchase of a house under CLSS and in affordable-housing projects by 4 percentage points – from 12% to 8%.
This is likely to benefit most of the firsthome buyers.
Besides the subsidy of Rs 2.67 lakh under CLSS, buyers will also get tax benefit.
This will reduce the price of a house by up to 4%.
Mid-premium (above Rs 4,000 per sq ft) to premium houses will get maximum benefit.
Developers welcome the move but say two rates will now be levied.
GST CUT ON BUDGET HOMES!
‘ Drop in GST coupled with interest subsidy under PMAY would help drive demand. The decision ‘ will allow significant savings on the purchase of homes.
Now, all Affordable Housing projects in the country would come under the ambit of the 8% GST slab. By lowering GST, builders would have enough incentive and can effectively lower the tax incidence on the buyer, Jain said.
As developers pays GST on inputs for the construction of a project, under GST, the taxes paid on the inputs are taken back as credit from the GST paid by the buyer. Input taxes on construction are around Rs 400-500 per sq ft.
Now even if the developer is selling at Rs 6,000 sq ft, the GST paid by the customer at 8% of the price would be (Rs 480 per sq ft), sufficient to allow the developer to take the credit against the input taxes of Rs 400-500 per sq ft. Therefore, on the net, buyer will not have to pay any additional tax now.
Earlier, at 12% GST, buyers had to pay Rs 720 per sq ft on a house of Rs 6,000 per sq ft. Even after adjusting for the input taxes of Rs 500 per sq ft, buyers had to pay Rs 220 per sq ft extra. Now, at 8% GST, this burden will be reduced.
But this benefit can be passed on to the customer by reducing the price to the extent of input credit on the unit.
AjaySinghal, promoter-director of Avalon Group, while welcoming the change pointed out that developers would face a problem as they would now have to charge two rates of GST on same kind of product from two different sets of buyers. Those who are purchasing their first house would be charged GST at 8% and those who do not qualify in this category will have to be charged at 12%.
RameshNair, CEO and country head of JLL India, a global real estate consultancy firm, said that as potential buyers across these segments are extremely price sensitive and are affected by even a small change in their overall outlay towards home purchases, the drop in GST coupled with interest subsidy would help drive demand. He said the decision would allow significant savings on the purchase of homes.