GST Rate Cut on Real Estate This Saturday? – Analysing the Impact

“Several Media Houses have published that the Prime Minister’s Office & Finance Ministry are in favour of a big GST rate cut on housing and are working to build consensus with states to push this through at the next GST Council meeting on December 22. 

As per the reports, there are currently two proposals on the table.

1.The first proposal is to slash the 12 per cent GST rate on housing to 8 per cent and bring it at par with affordable housing under the Credit Linked Subsidy Scheme of the Narendra Modi government.

2. The second proposal is far more bold. It is to slash GST on housing from 12 per cent to 5 per cent but it does away with input tax credit (ITC) for builders. 

The government as well as the Director General of the Anti Profiteering Authority, have observed that a majority of builders have not cut prices for home buyers, despite claiming the benefit of ITC which helps in reducing the cost of construction. After noticing a similar trend in F&B, the GST Council had decided to do away with ITC and had cut the GST rate to 5 per cent for consumers. 

AUTHOR”S VIEW –> What Happens if Either of the Above is made applicable.

1. Where 12% rate is reduced to effective 8%, there is no doubt that the pricing is clearly slashed with 4% rate cut. This shall reduce price and thus shall increase demand buoyancy which is much needed at this hour.
2. While in case where the rate is cut from current 12% to 5% without allowing the input tax credit, in our view, there will not be a significant price reduction since the differential 7% rate reduction will get subsumed by increase in cost of construction due to lapse of input tax credit at builder’s end. In very few remote cases, it may actually increase the pricing.
3. Thirdly, in our view, the Credit being blocked shall be regressive to the theory of GST itself. It is government’s machinery responsibility to ensure the Benefit of Anti Profiteering is passed on by Builders to Customers. Failing Builders have harsh provisions to face !