GST council reportedly has been considering to cut down the existing 12% GST rate to finalize at 5% on under-construction homes, indeed a piece of great news for home buyers.
Currently, the Goods and Services Tax levied on buying an under-construction house and ready to move houses that have not been issued a NOC (completion certificate) is at 12% on payments. The GST council is considering to lower the rate to 5% and will be making a decision next month.
However, the actual GST on under-construction homes would have been around 5-6%, as the 12% rate would have been partially offset by the way of taxes paid on inputs by builders. But unfortunately, many builders are not passing on the benefit amount on the input tax credit (ITC) to consumers.
So the council is also planning to channelize formally as many builders are paying for the inputs for building construction in cash and are not passing the benefits to consumers. It is heard that there is also a proposal before the council to lower the GST rate to 5% only for a builder who purchase 80% inputs from registered dealers.
The capital goods, input services and a majority of construction material used for the construction of houses and apartments have 18% GST rate and cement alone attracts 28% tax. Before implementing GST, the GST rate for the under-construction houses had a 4.5% service tax and a value-added tax (VAT) of 1-5% (variable on state), 12.5% on inputs excise duty with 12.6-145% VAT.
Finance ministry so far made vain attempts to make builders pass on the benefits to potential buyers and now the 5% GST proposal is expected to benefit the latter for sure.