Bengal finance minister Amit Mitra had lobbied hard for a 1 per cent tax on affordable housing in the run-up to the meeting of the GST Council that took place on Sunday.

The council, the apex decision-making body on the GST rates, at the meeting decided to cut the GST rate on affordable homes (up to Rs 45 lakh) to 1 per cent without input tax credit from the earlier 8 per cent with the tax credit.

The GST on under-construction flats (above Rs 45 lakh) has also been reduced to 5 per cent without the input tax credit from 12 per cent earlier with the tax credit.

In a letter to finance minister Arun Jaitley three days before the council’s meeting, Mitra had proposed a 1 per cent tax for flats costing up to Rs 40 lakh – and had also suggested that there should be no distinction between the metro and non-metro areas as that would promote rent-seeking behaviour.

The GoM had originally proposed a 3 per cent tax on affordable housing.

The GST Council accepted Mitra’s 1 per cent tax proposal but did not buy into his suggestion for a three-tier tax structure: 1 per cent tax for flats priced up to Rs 40 lakh, 5 per cent between Rs 40 lakh and Rs 1 crore and 7 per cent over Rs 1 crore. “We decided to lower the rate as there was a feeling based on reports from states that GST abatement benefits were not being passed on,” said Jaitley.

But a few nitty-gritties will have to be resolved.

“The fitment committee and law committee will decide on the detailed rules by March 10. After that, there will be a video conference meeting as most of the GST Council members will be busy with election campaigns,” Jaitley added.

Sumit Dutt Majumder, the former chairman of the CBEC and author of GST Explained for the Common Man : “Decision of GST Council to lower tax rate on the under-construction ‘affordable houses’ from 8 per cent to 1 per cent without the input tax credit will definitely help the common man. Even after considering the tax cost for denial of credit, the effective tax burden will be much lower now.”

Anuj Puri, chairman of Aanarok Property Consultant, said: “Changing the very definition of the budget-range of affordable housing is a booster shot.” With the general elections slated for April-May, wooing the large Indian middle class is a prime concern for all political parties — both the ruling party at the Centre as well as the opposition who run some 11 states.

“The lower rates would lead to a revival of the demand for under construction apartments, which had tapered down as buyers were preferring ready apartments which did not attract any GST,” said M.S. Mani, partner, Deloitte India.

Last Thursday, a video-conference meet of the council could not take a decision as the Opposition-ruled states objected to “being rushed” into decision making.