How Does Affordable Housing Fair Under GST?

If the ‘Housing for All by 2022’ mission is to be realized, a superior outlook toward affordable housing is essential, in addition to GST.

Affordable housing has never been a favourite among housing developers for its “low-intensity-low-profit” nature, but things are set to change, post GST. Uniform taxation brings with it a huge relief for home buyers and developers. Transparency that was perceived to be lacking in realty transactions is seemingly departing with the arrival of GST. The GST rate fixed for residential houses is 12% which replaces the earlier complex pyramid of service tax, VAT, and educational cess. Since higher value construction raw materials invite higher GST rates, a resurgence of interest into affordable housing projects is positively anticipated. One single tax on all realty units shall ease the process of tax filing, billing, home buying, identifying tax evaders, and all these shall enlarge government revenue.

The Indian real estate sector is being consistently refined, first by restricting black money transactions through demonetization, introducing real estate regulatory authority called RERA, and pulling the entire sector into the GST uniform tax regime. Each legislation enforced seeks to revive transparency in real estate dealings. The GST regime to be in force, come July 1, shall replace all variable and cascading taxes like service tax, excise, customs, VAT, etc. Application of GST on all kinds of real estate projects, including affordable housing shall have variable impacts depending on the extent of input costs and demand and supply factors.

Affordable houses are categorised as residential dwellings less than 50 lakhs in value. Assuming immediate price correction in such projects is unthinkable, because in event of “fractured clarity” about GST, developers, shall in no way, offer discounts. Only after complete clarity and enforcement of the act without reservations, shall the developer bend on price. Simplification and uniformity in taxation would eventually lead to more real demand, since RERA implications would imply a genuine overall market demand.

Although the current tax regime exempts affordable housing from service tax, there are anticipations that it shall continue under the GST regime too. Additionally, State stamp duty, costing between 5-8%, is another burden for home buyers in addition to GST. Though real estate developers have demanded to abolish stamp duty, its lucrative nature of filling state revenue may not allow its abolishment.

Revolutionizing tax legislation must be a precursor for a higher type of uniformity for the real estate sector. The most important amendment that could be introduced is about pricing, since India has short cycles of price escalation and depreciation, culminating into an ocean of bad debts every 4-5 years. In addition, taxing 12% (GST) for housing and 28% for construction materials like steel and cement could be detrimental. Raw material price increase midway during construction could render affordable projects unaffordable and out of the value bracket of 50 lakhs. The ‘input tax credit’ is an ethical intention which avoids double taxation, but passing its benefit to the home buyer is yet not clear. With the push for affordable supply, the government has invited for itself a liability of boosting employment for the poor and homeless, else to whom will the developers sell large stocks of affordable homes.

Introducing one legislation of uniform taxation is not victorious, but creating consistent conditions for its wilful adherence is. Apart from GST, the government needs to supplement more reforms that support the ambitious vision of ‘Housing for all by 2022’. A more comfortable and wiling ‘mass acceptance’ of GST is still possible, if it deters its launch until it addresses all cluttered doubts and concerns.


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