A group of ministers (GoM) led by Gujarat Deputy Chief Minister Nitinbhai Patel has recommended 5 per cent goods and services tax (GST) for under construction properties and 3 per cent GST for affordable housing sector without input tax credit, suggested media reports.
Currently, there is 33 per cent abatement on the tax (at 12 per cent) levied. This abatement is allowed because the cost of house also includes the cost of land. So effectively, the GST rate on affordable housing is 8 per cent.
However, GST is not levied on buyers of real estate properties for which completion certificate has been issued at the time of sale.
Anita Rastogi, partner, indirect taxes, PwC says that the abatement benefit has to be there as you cannot levy GST on land. She, however, adds that the GST Council also has to extend the benefit of input tax credit or else it won't have much of an impact on the customers.
In the 32nd Goods and Services Tax (GST) Council meeting last month, the panel has deferred the issue of lowering the GST rate on under-construction apartments. The council had referred the matter to a GoM.
The composition scheme being deliberated by the GST Council apparently does not have the clause of abatement. On a Rs 30 lakh flat, the total tax as per the existing rate of 8 per cent after abatement would be Rs 2.4 lakh. However, after factoring in the input tax credit, which could be anywhere around 1.5 lakh, the tax that consumer would have to pay would be between Rs 90,000 to Rs 1 lakh.
But under the composition scheme, the GST outgo for customers would be 1.5 lakh.