Rationalisation of GST rates – effective April 1, 2019

  • GST Council has rationalised the rates for under-construction houses from 12% to 5%, and for affordable housing from 8% to 1%.
  • No input tax credit for GST shall be paid on materials such as cement and steel for the sector at such lower GST rates.
  • Residential properties on which GST is payable shall be exempted of Intermediate Tax on development rights.
  • GST tax slab has been cut for both properties outside the affordable housing segment and within the affordable housing segment. Homes up to INR 45 lakh and with a carpet area of up to 60 square metres in metros and 90 square metres in non-metro cities will be counted in the affordable segment. The earlier limit was a uniform carpet area of up to 60 square metres for a house in an approved affordable housing scheme.

Impact of cut in GST rates

  • Housing and construction industry:
    • Incentive to industry to complete projects;
    • More builders can be expected to mobilise projects across the country;
    • Positive impact on the associate industry stocks like cement, steel, etc.
  • ~ 6-7% possible reduction in payout by home buyers;
  • Progressive effort to simplify taxation regime and compliances thereon;
  • Likelihood of achieving housing for all target by 2022;
  • Removal of the unutilised input tax credit, which resulted in a cost at the end of the project, shall now lead to better pricing

Additional reasons for positive impact on Cement Industry

  • Policy repo rate reduced to 6%, and further cuts are being speculated;
  • More investment in homes on account of easing in home loan rates;
  • Reduction in prime lending rates by the Reserve Bank of India and other incentives proposed in the Union budget;

CMA Analysis

The move to rationalise GST rates can be expected to stimulate demand and sales in the housing and construction sectors. It may be a better time to buy realty, steel and cement stocks as this GST rate cut is a win-win for homebuyers and investors. While this cut benefits the investors and buyers, denial of tax credit for real estate sector would warrant lower margins for the builders. This change may prompt the sector to review the prices and find a high equilibrium price for the inventory. Based thereon, GST cut is intended as a decision for the buyer and not the developer.