The Goods and Services Tax (GST) on housing properties that are under construction has been reduced to 1% from 8% in the affordable homes category and from 12% to 5% in the premium range. Alongside this, Input Tax Credit (ITC) to the builder has also been eliminated. Those who were planning to buy homes but were shying away due to the GST are now interested. Praveen Kumar, a 37-year-old lecturer in Mumbai, is now busy visiting some real estate projects in Panvel. Come April 1, when the GST rates take effect, he plans to invest in a flat costing Rs 42 lakh. He has started researching home loans in India too and goes online to Finserv MARKETS for credible information.
What is Affordable Housing?
The GST Council has redefined affordable housing as a residential house/flat of carpet area –
- up to 90 square meters (sqm) or 968.76 sq feet in non-metropolitan cities and town
- up to 60 sqm or 645.84 sq feet in metropolitan cities
A value up to Rs 45 lakh, both for metropolitan and non-metropolitan cities is applicable.
Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, and Faridabad), Hyderabad, Kolkata, and Mumbai (the whole of Mumbai Metropolitan Region-MMR).
Which means Praveen Kumar can take his pick from many flats which were earlier considered ‘premium’ and attracted even higher GST. So can you! Industry estimates suggest 5.88 lakh under-construction homes are lying unsold in the top seven cities. Of these, 34% are priced below Rs 40 lakh. With the Rs 40 lakh – Rs 45 lakh unsold inventory of many buyers being pushed into the affordable category, enquiries for home loans in India are also on the rise at Finserv MARKETS. The fact that 45% of the under-construction houses in these cities are priced below Rs 45 lakh is also stoking demand.
How Will You Benefit?
If you live in Delhi NCR or Mumbai where the cost of real estate is exorbitant, you will definitely benefit. If you purchase a property of 500 sq ft, priced at Rs. 3,000 per sq ft, it will cost Rs. 3,120 per sq ft including 12 % GST and benefit of ITC to the builder.
At the new rate of 1%, excluding ITC, the overall property cost will be Rs. 3,030 per sq ft, a flat reduction of Rs. 90 per sq ft. With a house loan to help you, owning a flat will be easier.
Boost to Realty Sector
The GST rate cut has boosted the sentiments of builders, investors and buyers. Though the ITC has been excluded, builders who have not passed on the benefit to customers will not be affected.
As cement continues to attract a 28% tax and other raw materials like steel, iron and paint are at 18% tax level, there is a possibility that some builders may hike prices to protect profit margins.
This means a property being sold for Rs 1 crore with 12% GST may be priced Rs 1.03 crore plus 5% GST. For the buyer, it still means he gets it for a total of Rs 1.08 crore instead of Rs 1.12 crore. With timely home loan tips, you can pull off a good bargain.
There is some speculation that the use of cash may return to pay for input materials, but the presence of a robust framework under the Real Estate Regulatory Authority (RERA) should address such fallouts. The price adjustments from the realtors will take some time to come, so buyers like you should not waste time in buying property with a house loan when the going is good.
Besides, the withdrawal of ITC helps buyers in another way. Unutilized ITC was being seen as a cost for builders at the end of the project. With its removal, the pricing of projects will become fair for both the buyer and the seller.
Whenever there is a transition in a tax regime, there will be a period of uncertainty and adjustments. You should await clarity on whether the interest subsidy on home loans under the Pradhan Mantri Awas Yojana and the Credit-Linked Subsidy Scheme will extend to the carpet areas under the new definition of affordable housing. While the rate cut of GST for under-construction projects is welcome news, you should be aware that a ready to move in flat with completion certification does not attract GST. Be sure to use these home loan tips before you invest.
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