A wholly owned subsidiary of Reserve Bank of India (RBI) and regulator of the housing finance companies, the National Housing Bank is pitching with the authorities for bringing down the effective Goods & Services Tax (GST) rate from current 12% after factoring the lowering of land prices that could ease the tax burden and help in propping up residential sales.
The regulator is expected to push for lower GST rates for affordable housing category especially although the general category is also under consideration at an effective rate of 6%. It is said to have written to finance ministry on the issue.
Realtors too have requested the finance and housing ministry officials to bring about a similar change in the current GST rate. At present, under-construction properties attract 18% GST and allow abatement of one-third of the apartment value towards land cost taking the effective tax rate to 12%.
While several stakeholders have been requesting for lower GST rate for under-construction properties, NHB is of view that at least low-cost and affordable housing need to be given the benefit of lower rates.
Realty developers said the reduction in GST would help in incentivizing end users to buy under construction properties. Most homebuyers are now giving preference to ready-to-move-in apartments to duck the tax.
“The government will earn more tax revenue if the rates are dropped to 6%. In this case, more buyers will come forward to buy under-construction properties than waiting for completed apartments that do not attract GST,” said Niranjan Hiranandani, CMD, Hiranandani Group.
Industry experts say the difference in tax rates for a ready property and an under-construction property has led to homebuyers going for ready properties. The GST rate for under construction properties is 12% while ready properties with completion certificate or occupation certificate do not attract GST. This has led to fall in demand for under-construction properties.