GST Council: Affordable Housing May Now Cover Homes Priced Up To Rs 55 Lakh, With A Recommendation To Raise Taxes On Luxury Projects
Delhi News
New Delhi. The GST Council’s Group of Ministers (GoM), established to assess changes to Goods and Services Tax (GST) rules for the real estate sector, has recently issued several vital recommendations. These proposals address significant areas such as expanding the scope of affordable housing, adjusting tax rates on luxury housing, and evaluating GST implications for joint development agreements (JDA). If these recommendations are approved, they could lead to notable impacts on both affordable and luxury housing markets and influence how joint developments are taxed under GST.
Affordable Housing Definition Expansion
At present, homes valued up to Rs 45 lakh qualify as affordable housing under GST regulations. However, the GoM recommends increasing this threshold to Rs 55 lakh, which could result in considerable relief for the affordable housing sector. Affordable housing currently benefits from a reduced % GST rate of 1%, while other residential projects are subject to a 5% GST rate. However, neither category benefits from an input tax credit (ITC). Should the GST Council approve the new Rs 55 lakh limit, it would widen the affordable housing category, potentially making more properties eligible for the lower tax rate and thereby enhancing affordability for a larger segment of buyers.
This adjustment aligns with the GoM’s objectives of promoting affordable housing as a more accessible option for homebuyers, especially given the rising costs of urban living. By redefining affordability, the Council aims to bring more properties within reach of a larger demographic without compromising on the quality or location of the housing.
Proposed Increase in Tax on Luxury Housing
In addition to affordable housing, the GoM also suggests an increased tax on luxury homes, particularly those valued over Rs 15 crore. This proposal, led by Goa Chief Minister Pramod Sawant and endorsed by a seven-member GoM, aims to levy an additional tax on luxury properties to boost government revenue from high-value transactions. The suggested tax increase is intended to distinguish high-end real estate purchases from regular residential transactions. It reflects a broader strategy to balance revenue collection between the affordable and luxury housing sectors.
Rising taxes on luxury housing could shift buyer demand, although the luxury segment tends to be less price-sensitive. For developers and buyers alike, these changes may present challenges. Still, the government sees them as an opportunity to ensure that high-value property transactions contribute proportionally to national tax revenues.
JDA GST Relief Request Denied
Despite industry requests, the GoM has decided against providing GST relief on joint development agreements (JDAs). JDAs, where developers and landowners collaborate to develop projects, often raise complex GST-related questions, especially regarding the application of input tax credit (ITC). Industry stakeholders had lobbied for GST relief under J.
DAs to allow smoother collaboration and reduce costs for developers. However, GoM members were primarily opposed, with one member stating, “There was a consensus on expanding the definition of affordable housing, although most members were against GST relief on JDA.”
The industry’s request for ITC benefits on JDA transactions was similarly declined. This decision aligns with the GoM’s broader perspective that tax incentives should be restricted to affordable housing and not extended to collaborative projects like JDAs, where developers often realize substantial profit margins. The industry may find this a setback. JDAs constitute a significant proportion of new development projects in metropolitan areas where land ownership and development are often shared between parties.
Upcoming GST Council Decision and Report Submission
The GoM met in Goa last week to finalize these recommendations and plans to submit its report before the next GST Council meeting, which is expected to occur in the second week of November. The Council’s final decision on these proposals will determine the future tax structure for the real estate sector, affecting affordable housing projects, luxury developments, and JDA collaborations.
The seven-member GoM includes notable members such as Goa Chief Minister Pramod Sawant, Bihar Deputy Chief Minister Samrat Choudhary, Uttar Pradesh Finance Minister Suresh Kumar Khanna, Kerala Finance Minister KN Balagopal, Maharashtra’s GST Council representative Aditi Tatkare, Punjab Finance Minister Harpal Singh Cheema, and Gujarat Finance Minister Kanubhai Mohanlal Desai. Their collective insights have shaped these recommendations to balance revenue objectives with promoting accessible housing.
Affordable Housing Definition and Eligibility
The current definition of affordable housing was established in the 33rd GST Council meeting in February 2019. This definition includes homes up to 90 square meters in carpet area in non-metropolitan regions and 60 square meters in metropolitan areas, priced up to Rs 45 lakh. Urban areas in this context include cities such as Bengaluru, Chennai, Delhi-NCR (Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, and Faridabad), Hyderabad, Kolkata, and Mumbai. By raising the price threshold to Rs 55 lakh, the GoM’s recommendation seeks to reflect current market values, making more homes eligible for affordable housing benefits.
GST Position on JDA and Leasehold Arrangements
The GoM also reviewed the GST implications for joint development agreements and leasehold arrangements, concluding that no changes were warranted. The group rejected proposals to retroactively provide ITC benefits on JDAs from April 1, 2019. This decision underscores the GoM’s focus on refining tax structures primarily for affordable housing while retaining existing tax policies for complex transactions, such as those involving JDAs.
In summary, the GoM’s recommendations, if approved, could profoundly impact the real estate landscape. An expanded affordable housing category would benefit buyers by offering more properties at lower tax rates. In contrast, increased taxes on luxury housing and maintained GST positions on JDAs aim to secure revenue from high-value transactions. As the real estate sector awaits the GST Council’s verdict, these changes reflect a balancing act between affordability, fiscal responsibility, and market demands.
