• Union and state governments on Sunday decided to lower Goods and Services Tax (GST) on under construction housing properties to 5% from an effective 12% in a pro-consumer decision ahead of national polls due by April-May.
• GST rate on affordable housing projects too has been lowered from an effective 8% to 1%.
• Under-construction properties priced upto Rs. 45 lakh will qualify as affordable housing projects for the purpose of GST relief in both metro cities as well as non-metro cities, finance minister Arun Jaitley told reporters.
• Although the cap on price of the property is ₹45 lakh for both metro and non-metro projects to get the 1% tax rate, they have to meet different carpet area requirements.
• Only those with the carpet area of 60 square metre in metros and 90 square metre in non-metros falling under the Rs. 45 lakh cap will be eligible for the 1% rate, explained Jaitley.
Aim behind this decision
• The idea is to boost the real estate sector which is struggling with record inventories.
• At present, the effective rate of GST on under-construction properties is 12% after allowing for the cost of land, which is out of the purview of GST.
• Properties where the construction has been completed attract stamp duty, not GST.
• The GST Council has been slashing tax rates to give relief to consumers despite the impact it has on the exchequer.
• Revenue secretary Ajay Bhushan Pandey said in an interview in Mint earlier this month that because of the rate reductions, benefit amounting to almost Rs. 90,000 crore a year has been given to consumers.
• Builder lobbies, including the Confederation of Real Estate Developers’ Association of India (Credai) and the National Real Estate Development Council have been demanding a reduction in the GST rate for a while now.
Mains Paper 3: Economy
Prelims level: GST Council