Affordable housing got one more boost from the government as the goods and services tax (GST) Council in its meeting on January 18 had recommended the effective GST rate of eight per cent for houses under the Pradhan Mantri Awas Yojana (PMAY) that provides credit linked subsidy scheme (CLSS).
Currently, houses under construction attract GST at the rate of 18 per cent. But with the provision of deducting one-third of the house price towards the cost of land, the effective rate comes down to 12 per cent. This will be now down by 400 basis points to eight per cent for affordable homes.
“One of the important recommendations is to extend the concessional rate of the GST of 12 per cent (effective rate of eight per cent after deducting one-third of the amount charged for the house, flat, etc. towards the cost of land or undivided share of land, as the case may be) in the housing sector to construction of houses constructed/acquired under the credit linked subsidy scheme,” said a statement from the Central Board of Excise and Customs.
The PMAY, first launched in June 2015, provided an interest subvention of 6.5 per cent for a loan up to Rs 600,000 for the economically weaker section (EWS) and lower income group (LIG) till 2022.
On December 31, 2016, the Centre introduced two new middle-income group (MIG) schemes under the PMAY. These provide an interest subvention of four per cent and three per cent, respectively, for home loans up to Rs 900,000 and Rs 1.2 million. Though the MIG schemes were initially announced only for 12 months, it has now been extended for an additional 15 months, till March 2019.
“This (lowering the GST rates) is likely to provide the much-needed fillip to the affordable housing sector as buyers will now be able to avail the interest subsidy under the scheme as well as get a lower concessional rate of GST of eight per cent,” said Anuj Puri, chairman of Anarock Property Consultants.
The carpet area of houses constructed under the CLSS is up to 30 square metres (sq m) for EWS, 60 sq m for LIG, 120 sq m for MIG I, and 150 sq m for MIG II. The maximum annual income for eligibility of beneficiaries under the scheme can be up to Rs 1.8 million.
“The proposed reduction in GST would provide relief to many homebuyers,” said Ram Walase, VBHC Value Home, promoted by ex-Citi banker Jerry Rao.
“In a way, this indirect tax benefit is uniquely targeted at a class of citizens on the basis of income criteria, which is normally a criterion for direct tax benefits only,” Walase said.
The carpet area of houses constructed under this component of the mission would be up to 30 sq m for EWSA, 60 sq m for LIG, 120 sq m for MIG Iand, and 150 sq m for MIG II. The maximum annual income limit for the beneficiaries is up to Rs 1.8 million.
For under-construction homes
- 18% Current GST rate
- 12% Current effective GST rate
Proposed for affordable homes
- 12% GST rate
- 12% Effective GST rate
- Effective rate is calculated after deducting one-third of the house cost towards cost of land