GST: GST reform will fulfill the dream of middle class to own a house, there will be savings of up to ₹ 7.5 lakh..

There can be good news for those who dream of buying a house this Diwali. Prime Minister Narendra Modi announced on Independence Day that the country's complex GST structure will now be simplified. The government will reduce the existing four slabs (5%, 12%, 18% and 28%) to two, 5% and 18%, while a new tax slab of 40% will be created for luxury and sin goods. The GST Council meeting will be held in New Delhi on 3 and 4 September. In which it is almost certain that it will be approved. Now the biggest question is whether this GST reform will benefit real estate and home buyers or not.

According to experts, real estate is going to get the biggest benefit from this. Tax on cement, steel, and other building materials will be reduced. Flat buyers will get the direct benefit of this. Currently, 28% GST is levied on cement, and 18-28% GST is levied on materials like steel, tiles, and paint. If all these items come under the 18% slab, then the cost of the flat can be reduced by Rs 150 per square foot. This means that savings of up to Rs 1.50 lakh can be seen on 1000 square feet. Let's discuss this in detail.

Current status of GST in real estate

Currently, 5% GST is levied on under-construction flats that are above Rs 45 lakh. On the other hand, GST of 1% is levied on affordable housing, which is up to Rs 45 lakh. There is no GST on ready-to-move flats. If we talk about building materials, then 28% tax is levied on cement, 8% on steel, 28% on paint, and 18% on tiles.

Why do developers not get ITC?

Before the implementation of GST, it was expected that the facility of input tax credit (ITC) would provide relief to the developers and they would pass on the tax savings to the customers. But in 2019, when the GST structure on real estate was changed, the government reduced the rates on flat purchase to 5% and 1% (affordable), but removed ITC. The result of this is that developers pay 1828% GST on building materials. They do not get any credit (refund) on this. Therefore, this tax is directly added to the construction cost. This additional tax is already levied on the price of the flat that the end user gets. The effect of this is that if the construction cost of a 1000 square feet flat is Rs 25 lakh and the average GST on building material is 20%, then the developer has to pay an additional tax of Rs 5 lakh. Due to the non-availability of ITC, this burden will be put on the home buyer. How much can a house become cheaper due to GST reform?

Average size (in square feet)

Estimated savings (in rupees)

1000 1.5 lakh

1200 1.8 lakh

1500 2.25 lakh

2500 3.75 lakh

3500 5.25 lakh

5000 7.5 lakh

What do experts say?

Real estate experts believe that if GST reform is implemented before Diwali, home buyers can get a direct relief of Rs 1.5 to 7.5 lakh. This impact will be the highest, especially in the mid-segment and affordable housing, where customers are price-sensitive. According to Homegram founder Gaurav Sobti, currently 5% GST is levied on residential properties and 12% on commercial properties, but there is a much higher tax on the things used in construction, such as 28% on cement, and 18% on steel, tiles, sanitary fittings, polishing and consultancy services like architecture or project management. If the GST on cement is reduced from 28% to 18%, it will directly reduce the cost of construction. This will affect the prices of houses and can make them more affordable.

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