What are the new GST rates?
New GST rates for under-construction flats and affordable housing were announced at the GST Council meeting held last month reducing the existing rates to 5% and 1% respectively. The council also increased the area limit of flats under affordable housing. The new rates are effective from April 1, 2019 onwards.
Developers are charging currently levied GST of 12% with input tax credit (ITC) on payments made for under-construction/ ready-to-move-in flats. The existing GST for affordable housing is 8%.
| Existing | Proposed | |
| General (%) | 12 | 5 |
| Input Tax Credit (ITC) | 100% on raw materials and services used | None |
| | ||
| Affordable housing (%) | 8 | 1 |
| If Area (Sq Ft) | 650 | 650-950 |
| If Price (Lakhs) | – | 45 |
Will this benefit buyers looking to buy residential flats/houses in Hyderabad?
Prices of housing will fall marginally according to the calculations of the government. Currently, for a Rs 50-lakh flat in the city, a developer will take into account the impact of input tax credit (~5%), reducing the value to around Rs 47.5 lakh. And adding a margin of, say, around 10 % the developer would charge around Rs 52 lakh and a 12% of GST translating into a tax of around Rs 6 lakh, which would have put the total cost at Rs 58.2 lakh. Without input tax credit, the cost will now be around Rs 55 lakh with a 10% margin. According to government back-of – the-envelope calculations, a 5% tax will mean that the same flat will now cost Rs 57.8 lakh.
*Tax benefits are higher for high priced homes than those under Rs. 50 Lakhs
According to India Ratings and Research (Ind-Ra), the decision of the GST council to reduce GST rates for under-construction residential housing will lead to marginal demand traction and more transparency for home buyers. Reduced costs on home buyers could increase the attractiveness of under-construction residential units, considering that developers maintain the base prices stable in the absence of availability of input tax credit (ITC).
How will this change impact the developer community in Hyderabad?
The tax burden will be shifted to the developers as the GST credit chain is broken and the input tax credit currently available would become a cost to the developers.
The immediate reduction of profits and the sector’s reboot to find a new equilibrium price pose immediate risks for the developer community.