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In a move targeting high-value properties, the GST Council has recommended a tax hike on luxury housing priced above Rs 15 crore.
Currently, housing units priced at up to Rs 45 lakh are categorised as affordable.
In a significant development, the Goods and Services Tax (GST) Council’s Group of Ministers (GoM) put forth several recommendations aimed at reforming GST rules in the real estate sector. Key proposals include broadening the criteria for affordable housing and increasing taxes on luxury housing projects.
Currently, housing units priced at up to Rs 45 lakh are categorised as affordable. The council suggested raising this threshold to Rs 55 lakh, a change that could provide substantial relief to the affordable housing sector. Presently, affordable housing projects attract a GST rate of 1%, while other residential projects are taxed at 5%.
Notably, neither category is eligible for input tax credit (ITC), a situation the GoM has not proposed to amend. In a move targeting high-value properties, the GoM has recommended a tax hike on luxury housing priced above Rs 15 crore. This proposal aims to bolster government revenues by imposing additional taxation on premium real estate.
No GST Relief for Joint Development Agreements
Despite industry appeals, the GoM has declined to grant any GST relief related to Joint Development Agreements (JDA). The group unanimously opposed proposals for providing an input tax credit facility for JDAs, indicating a preference for maintaining the status quo on this matter. One GoM member commented, “While there was a clear consensus on expanding the definition of affordable housing, most members were against any GST relief for JDAs.”
Upcoming GST Council Meeting
The GoM convened last week in Goa and is expected to finalise its report before the next GST Council meeting, which is scheduled for the second week of November. The Council’s final decisions will be informed by the GoM’s recommendations.
The GoM, led by Goa Chief Minister Pramod Sawant, comprises notable members including Bihar Deputy Chief Minister Samrat Chaudhary, Uttar Pradesh Finance Minister Suresh Kumar Khanna, Kerala Finance Minister KN Balagopal, Maharashtra GST representative Aditi Tatkare, Punjab Finance Minister Harpal Singh Cheema, and Gujarat Finance Minister Kanubhai Mohanlal Desai.
Background on Affordable Housing Definition
The existing definition of affordable housing was established during the 33rd GST Council meeting in February 2019. Under this definition, affordable housing encompasses flats with a maximum area of 90 square metres in non-metropolitan regions and 60 square metres in metropolitan areas, priced at or below Rs 45 lakh. Major metropolitan areas include cities such as Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, and Mumbai.
As discussions progress, the proposed changes to the definitions and taxation within the real estate sector are poised to have significant implications for both developers and homebuyers, particularly in the context of rising property prices. The upcoming GST Council meeting will be crucial in determining the future landscape of housing taxation in the country.
