A significant change could be on the horizon for India’s affordable housing sector. The Goods and Services Tax (GST) Group of Ministers (GoM) on real estate is preparing to recommend increasing the price limit for affordable housing from the current ₹45 lakh to ₹56 lakh per unit across India. This move aims to make more homes qualify for the reduced 1% GST rate, providing much-needed relief to potential homeowners. The 1% GST rate currently applies to affordable housing projects that do not claim Input Tax Credit (ITC).
Nationwide Applicability for Greater Impact
The GoM suggests that the new affordable housing limit be uniformly applied across all regions in India. This approach could simplify eligibility criteria and ensure a more consistent definition of affordable housing throughout the country, regardless of regional disparities in real estate prices. The panel’s discussions also hinted at a possible future revision of this limit, contingent on the findings of a formal report expected soon from the Reserve Bank of India (RBI).
Rethinking GST on Land Cost in Housing Projects
Another key point of discussion by the GST panel is the tax treatment of land costs in housing projects. Currently, the GST on affordable housing includes the cost of both construction and land, with the land component typically calculated as two-thirds of the overall cost. However, the GoM is considering whether GST should only apply to the construction portion, exempting land costs from taxation altogether.
If this recommendation is implemented, the cost of land could be calculated based on either the official circle rate or two-thirds of the unit’s total cost, whichever is higher. By exempting the land cost from GST, housing projects may see a reduction in the tax burden, potentially lowering overall costs for homebuyers.
Impact on Homebuyers
If these interim recommendations are accepted, the implications for homebuyers could be profound. Raising the affordable housing price limit would expand the pool of properties eligible for the reduced 1% GST rate. This would be particularly beneficial for those looking to buy homes in urban areas where real estate prices often exceed ₹45 lakh.
Moreover, exempting land costs from GST would effectively lower the overall price of new homes, making homeownership more accessible. For a country where affordable housing remains a crucial social and economic goal, these potential changes are a step in the right direction.
Next Steps
The GST GoM is expected to present an interim report with these recommendations soon. A final decision will likely hinge on feedback from stakeholders and the upcoming RBI report, which could further shape the affordability criteria.
For homebuyers and real estate developers alike, these proposed changes are promising. A revised definition of affordable housing and adjustments to the tax treatment of land costs could make homes more affordable and encourage growth in the housing sector.
Key Takeaway: The GST panel’s interim recommendations, if approved, could make homeownership more affordable by expanding the eligibility for the 1% GST rate and reducing the GST burden on land costs. This is good news for potential homebuyers, especially in urban regions where property prices are typically higher.