GST Council-approved tax cuts on houses constructed under PMAY scheme to be applicable from today
Here’s a double bonanza waiting for homebuyers, especially those who make the cut under the credit-linked subsidy scheme (CLSS). Not only will they be entitled to interest subsidy under the scheme but also the concessional rate of 8 percent that the GST Council decided to extend to the affordable housing sector last week. This decision will be applicable from Thursday.
The changes were notified on Thursday (January 25, 2018).
The Council, in its meeting held on January 18, had decided to extend the concessional rate of GST on houses constructed/acquired under the Credit Linked Subsidy Scheme for Economically Weaker Section (EWS) / Lower Income Group (LIG) / Middle Income Group-1 (MlG-1) / Middle Income Group-2 (MlG-2) under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban) and low-cost houses up to a carpet area of 60 square metre per house in a housing project which has been given infrastructure status, as proposed by Ministry of Housing & Urban Affairs, under the same concessional rate.
The benefit of Credit Linked Subsidy Scheme can be availed by economically weaker sections or low or middle-income groups for purchase of houses under any project. The maximum annual income for eligibility of beneficiaries under the scheme is up to Rs 18 lakh.
Developers, too, have reasons to cheer. All inputs used in and capital goods deployed for construction of flats, houses attract GST of 18% or 28%. As against this, most of the housing projects in the affordable segment in the country would now attract effective GST rate of 8% (after deducting the value of land), the note said.
As a result, the builder or developer will not be required to pay GST on the construction service of flats and other things in cash but would have enough ITC (input tax credits) in his books to pay the output GST, in which case, he should not recover any GST payable on the flats from the buyers. He can recover GST from the buyers of flats only if he recalibrates the cost of the flat after factoring in the full ITC available in the GST regime and reduces the ex-GST price of flats, a press note by the ministry said.
In the meeting, the GST Council had made several important recommendations for the housing sector to promote affordable housing. One of the recommendations was to extend the concessional rate of GST of 12% (effective rate of 8% after deducting one third of the amount charged for the house, flat etc towards the cost of land or undivided share of land, as the case may be) in housing sector to construct/acquire houses under the Credit Linked Subsidy Scheme for Economically Weaker Sections (EWS) / Lower Income Group (LIG) / Middle Income Group-1 (MlG-1) / Middle Income Group-2 (MlG-2) under the Housing for All (Urban) Mission/Pradhan Mantri AwasYojana (Urban).
Credit Linked Subsidy Scheme is one of the components of Housing for All (Urban) Mission/Pradhan MantriAwasYojana (Urban), the note said.
Under this component, the subsidy would be provided on home loans taken by eligible urban poor (EWS/LIG/ MIG-I/ MIGII) for acquisition, construction of the house, it said.
Credit-linked subsidy would also be available for housing loans availed for new construction and for the addition of rooms, kitchen, toilet etc, to existing dwellings as incremental housing.
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The carpet area of houses constructed under this component of the mission would be up to 30 square meters for EWS, 60 square meters for LIG, 120 sqm for MIG I and 150 sqm for MIG II.
Till date, houses acquired under CLSS attracted GST rate of 18 percent (effective GST rate of 12 percent after deducting the value of land). The concessional rate of 12 percent was applicable only on houses constructed under the other three components of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (Urban), namely in-situ redevelopment of existing slums using land as a resource component; affordable housing in partnership and beneficiary-led individual house construction/enhancement. The exemption has now been recommended for houses acquired under the CLSS component also. Therefore, the buyers would be entitled to interest subsidy under the scheme as well to a lower concessional rate of GST of 8% (effective rate after deducting the value of land).
The Council had also recommended that the benefit of concessional rate of GST of 12% (effective GST rate of 8% after deducting value of land) applicable to houses supplied to existing slum dwellers under the in-situ redevelopment of existing slums using land as a resource component of PMAY may be extended to houses purchased by persons other than existing slum dwellers also. This would make the in-situ redevelopment of existing slums using land as a resource component of PMAY more attractive to builders as well as buyers.
The third recommendation of the Council was to include houses constructed for Economically Weaker Section (EWS) under affordable housing in partnership (PMAY) under the concessional rate of GST of 8% (effective rate after deducting the value of land). This will support the construction of houses up to 30 sqm carpet area.
The fourth recommendation of the Council was to extend the concessional rate of 12% to services by way of construction of low cost houses up to a carpet area of 60 sqm in a housing project which has been given infrastructure status.
“While reduction of effective GST rate from 12% to 8% for affordable housing is good news for the buyers, they should also indulge in discussion with the developers to ensure that the benefits of input tax credit is passed on to them,” said Harpreet Singh, Partner, Indirect tax, KPMG India.
“Housing and construction play critical roles in the economy, with construction now the largest employer in the Indian economy. Prime Minister Narendra Modi’s government is seeking to grow employment and ensure that every Indian can participate in the economic growth story by owning their own home. 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 the 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). This is a significant step towards achieving the ‘Housing for All’ goal through greater employment, demand generation and wealth creation for 300-400 million middle-class Indians,” says Abhishek Lodha, Managing Director, Lodha Group.
In addition to the above, in order to provide a fillip to the housing and construction sector, GST Council had decided to give exemption to leasing of land by government to governmental authority or government entity. Also, any sale/lease/sub-lease of land as a part of the composite sale of flats has also been exempted from GST. Therefore, in effect, the government does not levy GST on supply of land whether by way of sale or lease or sublease to the buyer of flats and in fact, gives a deduction on account of the value of land included in the value of flats and only the value of flat is subjected to GST.