You can surely consider it as a pre-budget gift for homebuyers as the central government has decided to drop the GST rate on the houses under Pradhan Mantri Awas Yojana (PMAY) to 8%. During the GST Council meeting held yesterday, it was declared that all the under-construction houses that are being built as a part of Credit Linked Subsidy Scheme (CLSS) will be charged at 8% GST contrary to its current rate of 12%. However, anyone who is not entitled to CLSS will continue to pay 12% GST on real estate.
How Will It Help the Indian Real Estate Market?
In the statement given by the GST Council, they said, “It may be recalled that all inputs used in and capital goods deployed for construction of 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 GST of 8% (after deducting the value of land).”
They further added, “As a result, the builder or developer will not be required to pay GST on the construction service of flats etc. 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.”
There is no doubt that the decision for lowering the rate of GST in real estate from 12% to 8% for the houses constructed under Pradhan Mantri Awas Yojana (PMAY) will definitely bring positivity in the market. While the reduction in the GST rate will come as a benefit for homebuyers, it will also prove advantageous for developers too. Firstly, the builders and developers have to offer timely possession to homebuyers, then only the benefit will pass to them. In addition to this, it will fast track the infrastructure and housing projects under Housing for All by 2022 scheme. On and on, the decision to drop the GST in real estate to 8% will blow strengthen the realty sector.