Will 5% GST be applicable for real estate soon?

1 min read

A proposal is being considered by the Government to lower GST rates on apartments and homes which are under construction. The rates may be lowered to 5% soon as per reports.

GST rates may come down to 5% on under construction property

According to reports, there may be a lowering of GST rates on under construction property. Here are the points to consider in this regard.

  • GST Council is considering the reduction of GST on under-construction property and will take a decision at its next meeting.
  • GST rates may be lowered to 5% accordingly for under-construction property.
  • Currently, the GST rate is 12% for under construction flats or houses. It is also applicable for ready to move properties that have not obtained their completion certificate at the time of sale.
  • GST is not imposed on apartments or homes which already have completion certificates issued at the time of sale.

Are home buyers getting any GST benefits?

There are issues taken up in front of the Government by sections of the industry and homebuyers that the latter are not receiving GST benefits due to varied reasons.

  • The 12% rate of GST should have been ideally balanced through the taxes paid by real estate developers on inputs and hence the actual GST incidence on buyers of homes under construction would have been close to 5-6%.
  • The problem lies in the fact that developers are not passing on this ITC (input tax credit) to their customers.
  • The Council has received proposals for lowering the rates to 5% for developers who buy 80% of inputs from dealers who are registered.
  • Developers are presently paying in cash for inputs for their projects and hence the benefits are not being transferred to customers.
  • The Union Finance Ministry has been asking builders and dealers to transfer GST benefits to buyers but nothing concrete has materialized so far.


A solution may be in sight for the GST conundrum

Before the implementation of GST, 4.5% service tax and 1-5% of VAT (varied from State to State) were imposed on projects under construction. Inputs for construction were charged excise duty of 12.5% along with VAT of 12.5-14.5%. Entry tax was also there on these inputs. Post adjustment, the tax incidence stood at 15-18% on the buyer before the GST implementation.

  • Home buyers do not yet have a tangible solution with regard to availing of GST benefits.
  • The GST Council is considering proposals for reducing GST to 5% in order to ensure that homebuyers benefit.
  • Other proposals are also being considered and everything will be evaluated by the law and fitment committee ahead of the next meeting.
  • There is a consensus regarding a plan of action in this regard as per the Union Finance Minister, Arun Jaitley.
  • The GST rate is 8% in case of affordable housing schemes like the Pradhan Mantri Awas Yojana (PMAY), Nehru National Urban Renewal Mission and Rajiv Awas Yojana among others.
  • The Union Finance Ministry has reportedly stated that for affordable housing ventures, post offsetting of ITC, developers will not have to pay GST through cash since there would be ample ITC available for paying the GST (output).

5% GST is the way forward for Indian real estate

The GST Council is considering a GST rate of 5% for under construction property and this is the way forward, considering that homebuyers will benefit since developers often refrain from passing on ITC (input tax credit) benefits to them.

Resident Editor