National Housing Bank is in conversation with the GST Council and the other authorities to cut down the effective Goods & Services Tax rate 12% after measuring out the lowering of the land prices that could smooth over the tax burden and advance the residential property sale.
Being the regulator of the housing finance companies NHB is expected to recommend lower GST rates for affordable housing category in particular even if the general category is under consideration at an effective rate of 6%, confirmed 2 people familiar with the development.
Realtors had conversation with the finance and housing ministry officials where they put forward a similar change in the existing GST rate. Presently, under-construction projects are under 18% tax slab of GST and while it allows abatement of one-third of the total apartment cost towards land purchase cost counting the effective tax rate at 12%.
Experts say that reducing tax level on under-construction properties will reflect in sales figures as it will likely to boost market demand for under-construction projects. As projected, the government might earn better revenue if the tax rates are dropped to 6%. Nevertheless, government will consider and audit its revenue size before reaching any conclusive decision. Again, chances are there of adverse possibility in respect to lowering tax rate i.e. – excess credit in builder’s hand which would be converted to an additional tax and ultimately passed on to the end-users.
Real estate developers also are in for of lowering the tax rates on under construction projects. According to them enquiry for under-construction projects has drastically dropped ever since it was set under 18% tax slab of GST. A rate-cut will definitely motivate them towards investing in under-construction projects than waiting for those to be completed. As per the current market scenario buyers have shifted towards ready-to-move projects for saving the additional tax amount.
Additionally, the gap between the tax rates for on-hand and up-coming projects has weakened the market demand for under-construction projects. Presently, there is no additional tax burden for under construction projects and for under-construction projects it’s 12%.
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