A high-level ministerial panel’s recommendation to cut the GST on under-construction residential properties but, at the same time, do away with input tax credit may increase the price of affordable housing, analysts said.
The group of ministers under Gujarat deputy chief minister Nitin Patel has recommended the reduction in the GST on under-construction residential properties to 5 per cent from 12 per cent and affordable housing to 3 per cent from 8 per cent — but without input credit.
Analysts said the margin in affordable housing was low, and without input credit the builders would pass on the cost to consumers, which would increase the price of the house.
However, the margin per square feet in the non-affordable segment is substantial, and the developer could absorb some or even the whole of the material and construction costs.
Cost impact
Abhishek Jain, tax partner, EY said “for real estate properties where the cumulative impact of tax cost on account of denial in credits and 5 per cent output GST rate is lower than the current 12 per cent rate, this rate cut would be quite positive.
“But where the cumulative cost is higher than 12 per cent, this rate reduction could entail an increased cost.”
The GoM was set up last month to analyse the tax rates and the challenges being faced by the real estate sector under the GST regime.
M.S Mani, partner, Deloitte India, said “while restriction on input tax credits is an aberration in the GST framework, the reduction proposed in the rates for under construction property would bring it at par with the pre-GST scenario”.
“The reduction in the GST rate from 12 per cent to 5 per cent may not be passed on to home buyers in its entirety due to the absence of input tax credits to the builders… Any denial of input tax credits ends up breaking the value chain, despite the requirements to buy 80 per cent of inputs from GST registered dealers, delaying the formalisation of the real estate sector.”
The GST, however, is not levied on buyers of real estate properties for which completion certificate has been issued at the time of sale.
