Buying a house is not an easy decision for any individual. It is a very important deal that requires a huge investment. After the introduction of reforms like GST, this decision has become a lot more difficult for the home buyers, say experts at Modi Builders.
However, there is some good news for all the home seekers as the Goods and Services Tax (GST) Council is planning to cut GST rates on real estate. As per the sources, a positive decision in this regard is expected to be taken during the next meeting to be held in January.
The Fitment Committee of the GST Council has been working on streamlining the blocks under which commodities are taxed. Currently, two proposals are under consideration to provide a rate cut on under-construction flats.
The first of the two proposals is a fixed 12 per cent GST rate with full ITC (input tax credit) to the builder. Once the input cost of the land is accounted for and reduced, it will cut down the effective GST rate to 8 per cent.
On the other hand, the second proposal is aimed at bringing down the GST rate on under-construction flats to 5 per cent, without the benefit of ITC. According to the experts at Modi Builders, one of the top builders in Hyderabad, this proposal will come with a condition for the builders. They will be required to provide proof that the 80 per cent of the construction material has been purchased from suppliers registered with a GST number.
At present the GST is charged at 18 per cent in the real estate sector. However, the effective rate comes down to 12 per cent, after input costs like price of land are computed.
As the builders are stuck with a huge inventory of under construction apartments, the government is considering changes for under-construction flats. The reason behind this is the preference of buyers to go for ready-to-move flats for saving the cost of GST.
Currently, the property costs are divided into two components. One is paid to the builder or seller which is 80-85 per cent of the overall property cost. The remaining 15-20 per cent goes to the government as taxes. As ready-to-move-in properties are exempted from GST, the buyers only need to pay a stamp duty and registration charges as taxes.
For the economically weak, low and middle income group home buyers, the government has provided a GST benefit through its Credit Linked Subsidy Scheme (CLSS). As per the industry experts at Modi Builders, the beneficiaries of these schemes get interest subsidy and concessional GST rate of 8 per cent.
The government has also urged developers not to charge any GST from homebuyers to boost the sales in this segment. If opted for, the effective 8 per cent GST rate in affordable housing can be adjusted against their input tax credit.