Due to continuous GST framework discrepancies, the government’s decision to reduce rates to 8% from 12% for the affordable housing projects seems not appropriate for apartment purchasers.
There is a gap of Rs. 50 per sqft, when it considers what developers pay as GST considering construction work and what buyers pay as GST. Because now, developers raise the price of an apartment in order to cover the extra amount rendered on him and purchasers have to give nearly around Rs. 31,000 extra for a 600 sqft flat, as informed by the back-of-the-envelope calculation.
Under the affordable housing project, the apartment costs Rs 3,250 per sqft, where 81% of construction items such as aluminium joineries, wooden, granite, paint, tiles, ready-mix concrete, sanitary fittings, switches, and electrical wires come under 18% GST levy. Further, cement which consists of 7% of construction items come under the bracket of 28% GST. Remaining 4% of construction such as M sand, river sand, quarry dust and gravel come under 5% bracket and 8% of construction items like LED lights and concrete blocks come under 12% GST bracket.
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Calculating from the weighted average, the price of the construction items is Rs 1,200 and applying 17% GST on weighted average is Rs. 204. Labour for the construction work takes Rs 400 and GST on it counts 18% which amounts to Rs. 72. Considering, one-year maintenance, marketing expenses, and consultant’s fee, it reaches to Rs 200 along with 18% GST which is Rs 36. A developer pays put Rs 312 per sqft if we consider GST worth, but only get Rs 260 per sqft (8%) under the scheme from purchasers who buy an apartment at Rs 3,250 per sqft. Here, the difference between what developers costs in terms of GST and what he gets from the buyer is stand at Rs. 52.
P Suresh, MD, a major affordable housing projects developer mentioned, “No developer will be able to absorb this much burden. There is no other alternative than loading this cost on the project.” Further, including reduced GST in addition to labour cost from 18% to 5% can help to level the difference, he said, “The government should look into this anomaly and set it right to bring down the cost of affordable housing.”
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