Reduction in GST Rate on Housing

The reduction in the GST rate on housing is expected to make buying homes easier. The Goods and Services Tax (GST) Council decided to lower GST rates for under-construction houses. The new rate is 5 percent. The rate for affordable housing has been reduced to 1 percent. This change started on 1st April 2019. The goal is to reduce costs for home buyers. Builders can choose to pay old rates if they want to use the input tax credit (ITC). Fully completed houses with certificates will not have GST. This article explains everything you need to know about the reduction in the GST rate on housing.

Lower GST Rates and Their Impact on Home Buying

The following points explain how the new GST rates may impact home buyers and the real estate market.

GST Rate Reduction on Real Estate

The GST rate reduction on real estate is a big change for home buyers. Earlier, the rate for affordable homes was 8 percent. Now, it is just 1 percent. Other residential properties had a rate of 12 percent, which is now 5 percent. These new rates do not include ITC benefits. Builders have two choices. They can either pay higher GST with Input tax credit (ITC) or lower GST without ITC. This choice is only for projects that started before April 1, 2019 and were not finished by March 31, 2019.

New Definition of Affordable Housing

The GST council also changed the definition of affordable homes. A home is affordable if it has a carpet area of less than 60 sq. meters in metro cities. In non-metro cities, it should be less than 90 sq. meters. The cost should be up to Rs. 45 lakh. This means more homes in big cities will fall into the affordable category. Buyers in cities like Delhi, Mumbai, and Chennai may now find homes at lower GST rates. Fully built homes with certificates will not have GST.

Impact on Buyers

The reduction in the GST rate on housing can benefit home buyers. With lower GST, the cost of buying a home may decrease. Earlier, buyers had to pay a higher GST, making homes more expensive. Now, the tax reduction may lower the total cost. However, buyers must check if builders choose the old or new rates. Some builders may prefer old rates because of ITC benefits. This means some homes may still have higher GST.

Impact on Builders

Builders now have to decide between two GST options. Some builders may prefer to pay higher GST and use ITC. Others may choose lower GST but lose ITC benefits. Builders who choose the lower tax will have to adjust their costs. This may affect how they price homes. Some builders may pass the tax savings to buyers, while others may not.

Changes in Real Estate Market

The GST rate reduction on real estate may bring changes to the housing market. Lower GST may lead to more demand for under-construction homes. Affordable housing projects may see higher sales. More buyers may now consider purchasing homes due to lower tax rates. However, builders may take time to adjust prices. Some may still charge higher prices, keeping total costs the same.

GST on Fully Built Homes

Homes that have received completion certificates will not have GST. This rule is unchanged. If a home is already completed and has a certificate, the buyer does not pay GST. Only under-construction homes are affected by the reduction in GST rate on housing. Buyers must check if a home has a completion certificate before making a decision.

Challenges of the New GST Rates

The new GST rules also have some challenges. Builders need to adjust their pricing strategy. Some buyers may be confused about which GST rate applies to them. Affordable housing projects will benefit, but other projects may not see much change. Builders also have to decide whether to continue with ITC or move to the lower tax rate.

Future of GST in Real Estate

The GST rate reduction in real estate is a positive step. The real estate market has seen slow growth in recent years. Lower GST may help increase demand. More buyers may enter the market due to reduced tax costs. The government may take more steps in the future to support housing buyers.

Conclusion

The reduction in the GST rate on housing may help home buyers by lowering costs. Affordable housing now has a lower tax rate, making it easier for people to buy homes. Builders have different options for paying GST, which may affect home prices. The real estate market may see more demand for under-construction homes. However, some buyers may still find it confusing to understand the tax rules. In the future, more changes may happen to make home buying easier. Lower GST is a step towards making homes more affordable for many people.