MUMBAI: The housing finance companies’ regulator National Housing Bank is in talks with the authorities to lower the effective Goods & Services Tax (GST) rate from current 12% after factoring the lowering of land prices that could ease the tax burden and help in prop up residential sales, two persons familiar with the development said.

The regulator is likely to push for lower GST rates for affordable housing category especially although the general category is also under consideration at an effective rate of 6%. It is said to have written to finance ministry on the issue.

Realtors have also recently met finance and housing ministry officials to suggest a similar change in the current GST rate. At present, under-construction properties attract 18% GST and allow abatement of one-third of the apartment value towards land cost taking the effective tax rate to 12%.

“While several stakeholders have been requesting for lower GST rate for under-construction properties, NHB is of view that at least low-cost and affordable housing need to be given the benefit of lower rates,” said one of the persons cited above. An email query to NHB seeking comments for the article remained unanswered until the publication of this report.

“Lowering GST would lead to improvement in demand for under-construction homes. However, the government will consider and review its revenue implications before any final call. It may also be possible that lowering of tax burden may result in excess credit in builder’s hand which would become a cost for them and ultimately homebuyers will have to bear it,” said Abhishek Jain, tax partner, EY India.

Realty developers said the reduction in GST would help in incentivizing end users to buy under construction properties. Most homebuyers are now giving preference to ready-to-move-in apartments to duck the tax. “The government will earn more tax revenue if the rates are dropped to 6%. In this case, more buyers will come forward to buy under-construction properties than waiting for completed apartments that do not attract GST,” said Niranjan Hiranandani, CMD, Hiranandani Group.

Industry experts say the gap between tax rates for a ready property and an under-construction property has led to drop in demand for the latter. The GST rate for under construction properties is 12% while ready properties with completion certificate or occupation certificate do not attract GST.

Source: ET Bureau