Kollam: The decision by the Union government to cut the Goods and Services Tax (GST) for buildings under construction is expected to impart a major relief to the real estate sector.
As per the decision, rates have been slashed from 12 per cent to 5 per cent for the construction under progress and for affordable homes it is 1 per cent. The sector feels the move is likely to boost the turnover of the industry reeling under financial crisis.
“The rate cut in GST will be a major advantage to the purchasers,” said Reghuchandran Nair, former national vice-president of Confederation of Real Estate Developers of India. “However, the builders will in turn have to hike their rates to make up the loss in input rates.”
The term 'under construction' refers to buildings sold during construction and not after the works are completed. Transfer of ownerships of completed houses that have received completion certificates from authority concerned will not attract GST.
This has been coined in accordance with the norm of CGST Act 2017 that sale of a building is an activity or consideration which is neither a supply of goods nor a supply of services. Hence purchasing completed property will help buyers exclude tax and an under-construction property would attract tax.
The tax for under-construction building was fixed at 18 per cent with an effective rate of 12 per cent as the property's one-third is considered as cost of the land while the rest, which is the cost of construction, is only taxable. Now, this has been brought down to 5 per cent where as that of 'affordable' houses, to 1 per cent from a prior 8 per cent. Houses with a carpet area of 650 square feet in metro cities and 970 square feet in non-metros falling within a cost limit of Rs 45 lakhs have been categorised as 'affordable'.