New GST rate on house purchases for CLSS eligible buyers
The GST rate on buying houses has been reduced to 8% from the existing 12% for house purchases made under the credit-linked subsidy scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY) Urban. The 8% rate also applies to those houses constructed under affordable housing projects with infrastructure status. However, people not eligible for the CLSS will have to pay 12% GST.
New GST rate applies to select income groups
First-house buyers under the CLSS scheme with a max income of Rs. 18 lakh are eligible for the tax cut. The new GST rate of 8% (effective January 25) will henceforth be applicable for houses acquired or constructed under the CLSS for Economically Weaker Sections (EWS), Lower Income Group (LIG), Middle Income Group-1 (MIG-1), Middle Income Group-2 (MIG-2) under PMAY Urban.
Cap on size of housing is generous
The benefit under the CLSS, however, has a cap on the maximum size of housing. The cap has been kept at 1,615 sq ft carpet area (equivalent to around 2,200 sq ft built-up area). It would be apt to say that the cap is rather generous as the it covers most three-bedroom apartments and houses in India, especially in the metro cities.
The rates are expected to have a positive impact
The decreased GST rate for houses acquired under CLSS means a tax cut of 4%, which implies that there will be a consequent 4% effective decrease in house prices for eligible buyers. On one hand, this is expected to incentivize more people to purchase houses. On the other hand, the low tax rate is also expected to incentivize builders to not evade the system.
