India recently lowered a tax on affordable housing and residential projects in a bid to address the country’s lack of housing.
The government lowered a key goods-and-services rate on affordable homes to 1 percent from 8 percent, without input tax credit (ITC). The GST on projects under construction, which are not under the affordable housing segment, was reduced to 5 percent from 12 percent.
The new rates, which will come into force on April 1, will “provide a significant boost in fuelling residential sales,” says Ramesh Nair, CEO and Country Head, JLL India.
“While the market has been aligning itself to meet increasing demand for affordable housing, a reduction in GST will provide the much-needed incentive for investors.”
Sale of under-construction units remained slow post the implementation of GST in 2017 due to higher tax and lack of clarity around claiming ITC – a credit received on tax paid.
Nair says “the revision augurs well for homebuyers as the process of claiming the ITC under the former system was complex.”
Over the last four years, the Indian government has been targeting growth in affordable housing supply. Several reforms such as the creation of a dedicated affordable housing fund, credit incentives to low-income groups, and reassignment of the sector to come under ‘infrastructure’ in the Budget have all resulted in a rise in new affordable housing projects.
In a further measure to coax growth in India, the government has changed the definition of affordable housing to increase the sector’s supply and scope. “Affordable housing will now consist of a residential unit of a carpet area of up to 90 square-metres in non-metros, and 60 square metres in metros. Both the categories will have a price tag up to INR 4.5 million,” according to a statement by the government.
The government has already shown commitment to the sector and has been focussing on the gap within the segment from past few years. In February’s interim Union Budget, it announced a years’ extension on the approval time to claim 100 percent tax deduction on profits from affordable housing projects under Section 80-IBA.
“The extension not only ensures the continued interest of developers involved in the construction of affordable housing projects but will also attract new companies to this segment,” says Nair.
“Overall, it will help in achieving the ‘Housing for All’ objective of the government.”