The GST Council meet on Sunday has reduced the GST rates on under-construction properties from April 1. For properties priced above Rs. 45 lakh, the GST rates are now kept at 5% in comparison to 12% currently. Also, in case of affordable housing, the rates have been reduced to far below than what was proposed to 1% from 8% currently. For the new structures, the real estate developer will not be able to make a claim for input tax credit or ITC.

Jaitley post the meet said the decision could help in the realization of the mission of housing for all in the next 3 years time.

"This move will give fillip to apartments under construction in the country, and improve the flow of credit to the real estate sector," he said. Affordable houses in metro cities would be 2 BHK flats, while those in non-metros would be close to 3 BHK apartments, Jaitley said.

Further in regards to the scope of affordable housing, the Council included a twin definition based on cost and carpet area. In metro cities, affordable house will be defined as a house with carpet area of up to 60 sq. m and priced less than Rs 45 lakh. In non-metros, a bigger flat of up to 90 sq. m would be considered affordable housing, with the cost cap unchanged at Rs 45 lakh.

"Affordable housing has been defined in a very liberal manner. About 95 per cent of flats in small cities and about a third in metros are affordable houses. So, the aspirational class in smaller Indian cities would now pay only 1 per cent GST on under-construction flats they buy," said a senior finance ministry official.

Metro cities would include the Mumbai Metropolitan Region, National Capital Region (Delhi), Bengaluru, Kolkata, Hyderabad, and Chennai.

Nonetheless it is being perceived that the removal of input tax credit from the system is likely to result in an increase in cost of houses due to GST burden on developers.

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