GST: Affordable housing may have multiple definitions to reflect prevailing property prices across states

The Goods and Services Tax (GST) council may consider multiple price thresholds for defining `affordable housing’ across states rather than setting a uniform nation-wide classification. The move was aimed to better reflect prevailing property prices in different locations.

Currently, a residential apartment with a carpet area of up to 90 square meters, in non-metropolitan cities and 60 square meteres, in case of metros priced at up to Rs 45 lakhs will be defined as affordable houses for purposes of GST calculations.

Some states such as Maharashtra, Delhi and Gujarat wanted the price cap to be raised for house to qualify as `affordable’ in their states, given property were costlier in these regions.

In the last GST Council meeting held on March 19 these states had raised the matter, but the issue could not be considered because the Model Code of Conduct was in place.

The Council will have its next full-fledged meeting after the new government assumes office.

“In the first meeting that will be held after the new government is formed, the Council might consider this matter,” a senior government official who did not wish to be identified told Moneycontrol. States might be allowed to fix the ceiling for taxability, the official said.

The Maharashtra government wants the ceiling to be in the range of Rs 60-70 lakh or even Rs 75 lakh, especially in and around Mumbai. Gujarat is also learnt to have supported the suggestion. Some states have also asked for freedom to fix the ceiling instead of a uniform ceiling as the cost varies in different states. “All the options will be considered in the next meeting of the GST Council,” the official said.

Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (the whole of Mumbai Metropolitan Region) are considered as metropolitan cities for purposes of GST calculations.

In the last meeting held on February 24, 2019, the Council had lowered the GST rate to 1 percent from 8 percent for 'affordable houses' and to 5 percent from 12 percent for other houses, but without input tax credit (ITC) benefits.

In the next meeting on March 19, the Council allowed builders to choose between higher rates with input tax credits (ITC) on raw material or lower duties without any such benefits for unfinished projects.

The Council decided that builders can pick between paying 12 percent for non-affordable houses with ITC benefits or 5 percent without the tax rebates for under-construction houses.

Likewise, for 'affordable housing projects', builders can choose between 8 percent with tax rebates or 1 percent without it. The new rates, without ITC benefits, will apply for all projects that begin construction only after April 1.

Affordable housing presently has multiple definitions. In July 2014, the Reserve Bank of India had defined affordable housing loans as eligible under priority sector lending, as also housing loans to individuals up to Rs 50 lakh for houses of values up to Rs 65 lakh in the six metropolitan cities of Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad and Rs 40 lakh for houses of values up to Rs 50 lakh in other centres for purchase/construction of dwelling unit per family.

The Ministry of Housing and Urban Affairs, however, defines affordable housing on the basis of carpet area which could be between 30 square meter and 200 square metres.