With the budget around the corner, the Goods and Services Tax (GST) council is undertaking some course correction measures. One such measure relates to the housing sector. The council has reduced the incidence of GST for homes purchased under the Credit Linked Subsidy Scheme (CLSS). The reason for such a move is to incentivise the builders so that they do not dodge the system. At any rate, it has brought a lot of cheer for the homebuyers.
Real estate, in GST framework, refers to the value of the land and not the construction activities. Therefore, GST is applicable on the cost of construction incurred by the builder and not on the houses already constructed. All inputs used in and capital goods deployed for construction of houses attract GST of 18% or 28%. Obviously, this makes under-construction projects costlier than a ready-to-move-in home in Chennai. According to the new GST mandate, under-construction homes that form a part of CLSS will now be charged GST at 8 percent instead of 12 percent. However, people who are not eligible for CLSS will continue to pay higher GST.
The new GST rule enables the builder or developer to have enough ITC (input tax credits) in his books to pay the output GST. The builder is not entitled to recover any GST on the flats in Chennai from the buyers. However, the builder can recover GST from the buyers of flats only after factoring in the full ITC available in the GST regime and reducing the ex-GST price of flats.
New GST rate effective from Jan. 25
From January 25, the concessional rate of GST will be applicable for houses constructed or acquired under the CLSS for Economically Weaker Sections (EWS) / Lower Income Group (LIG) /Middle Income Groups (MlG-1) and (MlG-2). This concession will only be applicable for units brought under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY Urban) scheme. The government will provide interest subsidy, under CLSS, on home loans taken by eligible urban poor for acquisition or construction of the house.
With the affordable housing space getting more lucrative, it is time for homebuyers to take advantage of benefits offered by the government. It would make sense that they invest in upscale properties that are coming up in metropolitan suburbs. Ready-to-move 1,2,3 BHK apartments in Chennai such as L&T’s Eden Park are the best bet, with added attractions of an integrated township and immense savings in purchase cost.