Government reduces GST on work contracts for affordable homes

The government has reduced GST rate on work contracts for affordable housing to 12% from 18% fixed earlier. But it is unlikely to have any impact on prices of affordable housing for buyers, industry experts said as GST rate for buyers to purchase a finished house remains at 12%.

In a notification issued on Tuesday, the government said GST on composite supply of work contracts for affordable housing up to carpet area of 60 sq metre in a project approved by a competent authority will be 12%, including the state GST.

CREDAI president Jaxay Shah said the new rate is only for work contractors. If a developer involves a work contractor for his project, his cost will be reduced by 6%. But in the affordable segment, developers construct projects themselves to be cost-efficient. Therefore, the cost for developers will remain the same.

And on top of that, buyers will continue to pay GST at 12% on affordable housings. Of course, he will get the credit for taxes paid on inputs.

In GST regime, when a developer sells a house to an enduser, GST will be calculated at 18% on the two-third value of the house. The net rate would be 12% of total price of the house. The abatement of one-third of the value of the house is given to adjust the land price, which neither comes under goods or nor services category.