Should Government keep GST at 5% for Affordable Housing?

What should be a fair rate of interest for the real estate and construction industry? Amid many speculations, various industry bodies and experts have suggest a 5% GST tax to be applied on realty.

The government has already announced the Goods and Services tax (GST) to be in place from the next financial year. With speculations hovering around the rate at which several goods and services will be taxed, the realty sector is eagerly waiting see which tax rate is going to be applied to the real estate and construction industry. The finance minister has already clarified that the highest rate of taxation will be applicable to ‘sin’ items, which are taxed at around 30% currently. However, with PM Narendra’s Modi’s ambitious Housing for All by 2022 target, the various industry bodies are advocating for a 5% of tax rate for the real estate and construction industry.

According to Getamber Anand, president, apex industry body, Confederation of Real Estate Developers Associations of India (Credai), "We have asked for infrastructure status for affordable housing. We have also pitched for a higher interest subvention for affordable housing, which was 1% on housing loans of up to Rs 35 lakh. This should be enhanced to 2% for housing loans of Rs 50 lakh at least. We have also asked for income tax rebate to be increased from Rs 2.5 lakh to Rs 4 lakh."

Real estate developers suggest that the rate of goods and services tax (GST) should not be more than 5% to boost the benefit affordable housing. According to them, if the rate is applied above 5%, homebuyer will be doubly hit by paying both the stamp duty and as well as GST. This will ultimately increase the overall cost of ownership for the buyers.

A ground reality is that an average buyer usually finds it hard to meet his eligibility of bank loan and arrange the down payment. He has to pay several taxes, such as stamp duty and property registration tax, which are not covered by the banks. Hence, if the GST rates are kept at a higher slab, it will only make matters worse. For say, if a buyer is looking forward to purchase an affordable Property in Delhi/NCR of around 50 lakhs, he will have to be ready for an additional cost in excess of 2.5 lakh, if the rates are applied more than 5%.

To achieve the central government’s goal of promoting affordable housing, other stakeholders such as the developers have also increased their effort to cater to this category in a big way. Their biggest belief that housing is one essential component of the three basic needs of common man – food, cloth and shelter. However, in the current scenario, owning a permanent shelter for a common man is s distant dream.

This is why higher tax rates would only dampen the dream of affordable housing and make the sector a favourable ground for affluent players.