india

Updated: Aug 12, 2019 07:18 IST

The Union government is planning to incentivise homebuyers and create demand in the sluggish real estate sector with a slew of measures, including a proposal by homebuyers that would marginally increase Goods and Services Tax (GST) on housing projects but bring down the overall cost, people aware of the development said on condition of anonymity.

On Sunday, finance minister Nirmala Sitharaman held two separate meetings — the first with realtors’ associations, and the second with homebuyers’ groups — to discuss how to strengthen the realty sector.

Homebuyers who met the minister proposed that GST on premium housing projects be increased from the existing 5% (excluding input tax credit) to 8% (including input tax credit) — a move that would eventually reduce the cost of a project substantially, said one of the persons aware of the development.

“Needless to say, that the present GST regime of 5% without ITC [input tax credit] is actually translating into a tax burden of around 14% for consumers... An 8% tax with ITC will offset tax paid by builders on building materials such as tiles, cement and sanitaryware, and bring down the cost,” said Abhay Upadhyay, the president of the Forum for People’s Collective Efforts (FPCE), a pan-India forum for homebuyers. Upadhyay was present at the meeting with the finance minister.

Input credit means a builder can deduct the tax paid on inputs and pass on the reduced tax liability to the buyer of an apartment at the time of paying tax on output (the final product).

The group of homebuyers suggested that such a move, if implemented, would encourage people to invest in properties, a second official said. He clarified that any such decision would require approval of the GST Council, which comprises representatives of states.

The developers, for their part, raised three major issues: liquidity problems, taxation issues and completion of stalled projects.

Niranjan Hiranandani, president of the National Real Estate Development Council (NAREDCO), who was present in the meeting, said real estate and infrastructure growth was a must to boost the economy and create jobs.

The Confederation of Real Estate Developers’ Associations of India (CREDAI) said the Sunday meeting indicated a sense of “earnestness and urgency” in a formal statement.

In its 33rd meeting in February, the council reduced GST rates on under-construction affordable residential properties (valued up to Rs 45 lakh) to 1% from 8% without input tax credit, and to 5% from 12% for the premium segment housing.

Then finance minister and chairman of the council, Arun Jaitley, said at the time that the move would “give boost to housing for all and fulfil aspirations of neo and middle classes”. It was a revenue-neutral decision that was taken because some builders were not passing on the benefit of tax rebates to customers.

On Sunday, Sitharaman assured both builders and homebuyers that the government will take further steps to resolve policy issues, particularly liquidity problems faced by the industry as well as project delays, a third government official present at the meeting said.

First, real estate developers made a presentation and discussed their issues. Then, homebuyers took up their issues with Sitharaman after developers left the conference hall, the third official said.

Besides senior finance ministry officials, Hardeep Puri, the minister of state for home for housing and urban affairs, and Anurag Thakur, the minister of state for finance and corporate affairs, were present at the meetings.

Representatives of homebuyers who have paid money to developers and have been awaiting possession for several years asked the government to direct banks to treat them compassionately, and not like a business entity.

“The government should provide some relief either in terms of deferring EMI [equated monthly instalment] payments or provide some income tax rebate to protect consumers who are paying both rent and EMIs,” said Jayashree Swaminathan, who represented homebuyers of the Jaypee Group.