Affordable Housing Gets a Boost with 4% Cut in GST Rate – The Economic Times

January 26, 2018 By Lodha Web

This reduction in tax is applicable to up to 645-square-feet homes purchased by availing the Credit Linked Subsidy Scheme (CLSS) under the Prime Minister Awas Yojana (PMAY)

Kailash Babar | ETRealty | January 26, 2018, 07:36 IST

MUMBAI: Prospective homebuyers in the affordable housing segment have a reason to rejoice as their tax burden will ease following the 4% reduction in Goods & Services Tax (GST) to 8% with effect from January 25. This will lead to higher sales momentum in this segment, feel real estate developers and property market experts.

This reduction in tax is applicable to up to 645-square-feet homes purchased by availing the Credit Linked Subsidy Scheme (CLSS) under the Prime Minister Awas Yojana (PMAY), as per the changes recommended at a recent GST Council meeting. Other homebuyers will continue to pay the existing 12% GST after factoring in the one-third abatement for land value.

“Potential buyers across these segments are extremely price sensitive and are impacted by even a small change in their overall outlay towards home purchases. Therefore, this drop in the applicable GST, coupled with the interest subsidy, will allow significant savings on the purchase of homes,” said Ramesh Nair, CEO, JLL India.

This drop in GST rates will benefit developers too as the higher Input Tax Credit that they can avail on construction material and services can be used to offset GST that a buyer may pay, further incentivising the pricing of homes and buying activity.

“The reduction in effective GST rate to 8% from 12% on affordable housing is good news for the entire economy as it will increase employment and consumption at the national level. From the sector’s perspective, there’s a huge shortage of housing and lower GST rate will reduce transaction costs for buying under-construction real estate which was earlier taxed at 17% + (12% GST + 5% or higher stamp duty),” said Abhishek Lodha, managing director, Lodha Group.

The government has been pushing affordable housing in a big way for the past three years. In addition to granting infrastructure status to affordable housing, it has also offered PMAY benefits to push its vision of ‘Housing for All by 2022’.

The industry expects the government to offer further support to this segment in the upcoming Union Budget.

The cut is applicable to up to 645-sqft homes purchased by availing the CLSS under the Prime Minister Awas Yojana