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GST Council has approved a transition plan for a 5% rate on Other Than affordable Residential Housing flats and 1% on affordable housing Flats in the 34th meeting held on 19th March 2019. According to this plan, under-construction residential flats other Than Affordable will now attract a 5% GST rate, while projects classified as affordable housing will be taxed at a significantly lower 1% GST rate. (The Tax rate is Effective)
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To further promote affordable housing, the council has also expanded the definition of affordable housing by increasing the permissible carpet area for eligible flats. This move aims to make more homebuyers eligible for tax benefits under GST.
What is affordable housing- An affordable residential apartment is one in which:
– In metro cities, the carpet area should not exceed 60 square meters.
– In other cities and towns, it can be up to 90 square meters.
– The total price charged by the builder must not exceed ₹45 lakh.
How to Calculate the ₹45 Lakh Limit While Checking Eligibility for an Affordable Housing Project?
While determining whether a property falls under the ₹45 lakh affordable housing limit, you need to consider all charges, including preferential location charges, parking fees, development charges, and common facility charges. However, certain expenses are excluded from this calculation, such as stamp duty, maintenance charges, deposits for apartment maintenance, and maintenance of common infrastructure.
Metro cities under this classification include Bengaluru, Chennai, Delhi NCR (covering Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, and Faridabad), Hyderabad, Kolkata, and Mumbai (entire MMR region).
However, it is important to note that this reduction in GST rates applies exclusively to residential projects and does not extend to commercial properties. That said, if a project consists of up to 15% commercial space, it will still be considered a residential property for taxation purposes.
The updated tax rates come with specific conditions. Builders will not be able to claim Input Tax Credit (ITC) under this new system. Moreover, they must ensure that at least 80% of their raw materials and services are sourced from GST-registered suppliers.
However, the cost of the following services used in constructing residential apartments is not included in this calculation:
• Grant of developmental rights
• Long-term lease of land
• Floor space index
• Value of electricity
• Value of high-speed diesel
• Motor spirit and natural gas
The promoter must pay GST at 18% on a reverse charge basis for any shortfall in procuring at least 80% of inward supplies from registered suppliers. However, for cement purchased from unregistered suppliers, GST must be paid at 28%.
If this requirement is not met and the purchases from registered vendors fall below the 80% threshold, the builder will be responsible for paying the higher applicable GST on the shortfall under the Reverse Charge Mechanism (RCM). In simple terms, instead of the supplier collecting and paying GST, the builder will have to bear the tax liability themselves.
The key details are outlined in the table below:
| Particulars | Affordable Housing Segment | Other than Affordable Housing Segment | Commercial Segment |
|---|---|---|---|
| Existing GST Rates | 8% | 12% | 12% |
| Revised Rates wef from 1-April-19 | 1% | 5% | No change |
| ITC Available on New GST Rates | No | No | Yes |
Developers of ongoing residential projects have been given a one-time option to choose between the old tax rates with ITC and the new tax rates without ITC for under-construction residential projects, helping to address any issues related to input tax credit.
Comparison of residential property prices before and after April 1, 2019.
| On or Before 31/03/2019 | On or after 01/04/2019 | |||
|---|---|---|---|---|
| Particulars | Residential Buyers (Other than Affordable Housing Scheme) | Residential Buyers (Affordable Housing Scheme) | Residential Buyers (Other than Affordable Housing Scheme) | Residential Buyers (Other than Affordable Housing Scheme) |
| Effective rate of GST | 12% | 8% | 5% | 1% |
| Whether ITC is available? | Yes | Yes | No | No |
| Cost of Land (A) | 25.00 | 25.00 | 25.00 | 25.00 |
| Cost of Construction (B) | 14.40 | 14.40 | 14.40 | 14.40 |
| GST on Inputs (at the rate of 18%) (C) | 2.60 | 2.60 | 2.60 | 2.60 |
| ITC Available (D) | (2.60) | (2.60) | - | - |
| Total Cost to Builder (E = A+B+C-D) | 39.40 | 39.40 | 42.00 | 42.00 |
| Profit Margin (cost plus 2% mark-up) (F) | 0.79 | 0.79 | 0.84 | 0.84 |
| Sale Price of Flat (G = E+F) | 40.19 | 40.19 | 42.83 | 42.84 |
| GST on sale price of flat (H = G * Effective Rate | 4.82 | 3.22 | 2.14 | 0.43 |
| Net cost to buyer (G+H) | 45.01 | 43.41 | 44.97 | 43.27 |
Although the GST rate has been significantly reduced, the overall benefit to the customer remains minimal.
The modality of the new tax rate:
The modality for transition:
| Ongoing Residential Projects | Affordable Housing | Other than Affordable Housing | |
|---|---|---|---|
| Transition option | |||
| • Construction commenced before April 1, 2019; and • actual bookings have started before 1st April, 2019; and | |||
| • the project has not been completed by 31st March, 2019 | |||
| New rate applicable on | All new projects, as well as ongoing projects that have not opted for the previous tax structure. | New GST rate shall apply on following: New Projects - All houses classified as affordable housing must have a maximum area of 60 sqm in non-metro cities and 90 sqm in metro cities. Additionally, the price of the house should not exceed ₹45 lakhs to qualify under this category. Ongoing Projects – Affordable housing units being developed under existing Central and State government housing schemes, where the current concessional GST rate of 8% applies. | New GST rate shall apply on following: New Projects – Includes all residential houses that do not fall under the affordable housing category in newly launched projects. Ongoing Projects – Covers all residential units excluding affordable housing in ongoing projects, regardless of whether they were booked before or after April 1, 2019. However, for homes booked before April 1, 2019, the new GST rates will only apply to instalments due on or after April 1, 2019. (Refer to Note-1 and Note-2) |
| Input tax credit | No credit available, If opting for new rate | Input tax credit shall not be available | Input tax credit shall not be available |
Note-1: For ongoing projects where both construction and booking began before April 1, 2019, and the developer has opted for the new tax rates, the transition of Input Tax Credit (ITC) will follow the prescribed method. The total ITC for the project will be calculated by extrapolating the ITC availed based on the percentage of completion as of April 1, 2019.
The eligibility for ITC will be determined by the proportion of flats booked and invoices issued up to that date. Thus, ITC will be granted on a pro-rata basis, meaning credit will be allowed only in proportion to the number of flats booked and invoiced.
Note-2: The 5% GST rate will also apply to commercial units such as shops and offices that are built within residential real estate projects, provided that the total carpet area of the commercial portion does not exceed 15% of the total project area.
Commercial Projects
For fully commercial projects, whether ongoing or newly launched, there are no changes in GST rates.
• GST Rate – The tax rate for commercial projects will continue to be 12%.
• Input Tax Credit (ITC) – ITC benefits will remain available for commercial projects.
Applicability – This applies to all new and ongoing projects that consist entirely of commercial units, such as shops, offices, and commercial spaces.
Mixed Use Projects
Mixed-use projects refer to developments that include both residential housing and commercial properties, where the commercial area exceeds 15% of the total carpet area of all apartments.
GST Rate – The GST rate for the commercial portion will remain 12%, while the residential portion will follow the rates specified in the respective housing categories.
Input Tax Credit (ITC) – ITC will only be available for the commercial segment. In mixed-use projects, ITC will be allowed on a pro-rata basis, calculated as per the proportion of the commercial carpet area in the ongoing project compared to the total project carpet area. Even after April 1, 2019, the commercial portion of ongoing projects will be taxed at 12% GST with ITC benefits.
Conditions for Applying New GST Rates
Builders must ensure that at least 80% of inputs and input services are procured from registered suppliers. The following do not fall under input services:
• Capital goods
• Joint Development Agreements (JDA)
• Transferable Development Rights (TDR)
• Floor Space Index (FSI)
• Long-term lease (premium payments)
If the 80% requirement is not met, the builder will be liable to pay 18% GST under the Reverse Charge Mechanism (RCM) for the shortfall. Additionally:
• Cement purchased from unregistered suppliers will attract 28% GST under RCM.
• Capital goods purchased under RCM will be taxed at applicable rates.
CA Ankit Agarwal is a seasoned GST expert, dedicated to sharing in-depth knowledge on GST laws, tax compliance, and business regulations, helping businesses and individuals navigate India’s evolving taxation landscape with ease.
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