In News:

• The 33rd reconvened meeting of the Goods and Services Tax (GST) Council cut the tax rate for under-construction housing to 5 per cent (without input tax credit) from the present effective rate of 12 per cent (after one-third abatement of land). For affordable housing, the GST rate was reduced to 1 per cent from effective 8 per cent. The new rates will take effect on 1 April.

Explained:

• The reduction in the GST rates for under-construction projects is the most decisive move by the GST Council with a clear focus on demand stimulation.
• This move will give the necessary fillip to the demand in under-construction segment, which has been suffering from low sales levels for last many quarters.
• The elimination of input credit tax benefit may hit profitability for the supply side; however, the potential demand generation as a result of this move will far outweigh any negative aspects leading to greater sales numbers and revenues
• The reduction in GST can potentially reduce the buyers’ payout by 6%-7% on the overall purchase, depending on the category. The increase in sales will bring down the unsold inventory which has been afflicting the real estate sector.
• Under-construction properties priced up to ₹45 lakh and measuring 60 sq metre in metros and 90 sq metre in non-metro cities would qualify as affordable housing projects for the purpose of GST relief in metro cities as well as non-metro cities.