The Central Government might reduce the luxury tax slab of 28% on construction items ahead of the 2019 election. The move will be aimed to stimulate the currently dull construction sector.
The next 28th meeting of the GST Council is scheduled for July 19. Reportedly, the GST council is considering reducing the 28% tax slab on specific construction materials to 18%. The 10% reduction GST rate would propel economic growth and provide the impetus for job creation.
If the GST Council approves the proposal in its 19 July meeting, it could be a welcome move for both homebuyers and builders.
The Construction sector has witnessed a fairly low and stagnant growth index in the past few years. The relaxation in tax could boost demand and subsequently force a resurgence of some short in the sector. Niranjan Hiranandani, president National Real Estate Development Council, and chairman and managing director of Hiranandani Communities, said “It will be helpful in the long run. Reduced GST rates will help in inventory growth as well as increase demand.”
A Few Immediate impacts of the move could be:
- Clear unsold Inventory.
- Increase in Demand.
- Easy availability of credits for Builders.
- Propel construction activities.
The Past Two-Years have witnessed a 10% decline in unsold housing units (808,000 units) as in October 2017. Since coming to power there have been commendable efforts by the Central Government to regulate the volatile construction sector. RERA or Real Estate (Regulation and Development) Act was introduced for this purpose. But post-demonetization minimal inventory addition and low customer demand hampered growth. This posed a major setback for the Government’s housing-for-all scheme by 2022.
- To counter this the Government in its Pradhan Mantri Awas Yojana had relaxed carpet area norms for. The move was aimed to pass interest subsidy benefits to the middle-income group.
- Furthermore, the eligibility limit for housing loans for priority sector lending was increased to ₹25 lakh in non-metro cities.
- 28% GST is levied on cement and paint. Some experts also suggest that the benefits could increase manifold if the GST on paint is also reduced to 18%.
The labour-incentive construction sector reportedly accounts for 8% of India’s GDP. Following a lacklustre growth of 1.3% in 2016-17, Construction activity increased by 5.7% in 2017-18. The fourth quarter of 2017-18 has recorded double-digit growth of 11.5%. The main reasons attributed to this growth were lower inventory addition post RERA coupled with sales surpassing the rate of inventory addition.
