India yesterday announced a cut in the Goods and Services Tax (GST) charged on sales of residential properties under construction as the government looks to stimulate the economy by driving up consumption.
The GST Council, comprising state and federal finance ministers, announced that the new rate will be 5%, down from 12%, on all new housing projects except those that are classified as affordable housing, according to a statement from the finance ministry.
The council also decided to slash the tax rate on affordable housing projects to 1% from 8%, the statement said after a meeting in New Delhi yesterday.
“This will give boost to housing for all,” Finance Ministr Arun Jaitley said in a Twitter post.
Prime Minister Narendra Modi’s ruling Bharatiya Janata Party has been seeking to stimulate the economy as he faces a general election by May. Concerns about low farm incomes and weak jobs growth have undermined his standing with voters.
Last month, the government announced a change in national sales tax rules that would exempt about 2mn small businesses from payment of tax.
The residential sector in some parts of the country has been in a torpor following the failure of some property developers.
In and around the capital New Delhi, for example, there are many half-completed properties.
Home buyers put deposits down on many of the apartments only to see the developers fail or, in some cases, commit fraud.
The GST Council has revised down tax on hundreds of goods and services in the past 18 months.
The council also altered the definition of affordable housing for India’s secondary and smaller cities.
For non-metro cities, any home built on an area of 90sq m and below would be categorised as affordable, up from the current 60sq m cap, according to the finance ministry. The 60sq m ceiling remains for homes in metro cities.
The property also has to be Rs4.5mn ($63,360) or below to qualify as affordable.
The statement specified that the council would classify New Delhi, Mumbai, Kolkata, Chennai, Bengaluru and Hyderabad as its metro cities.
The GST Council, the statement said, specified that builders, who utilise the lower rate will not be able to get a refund of input tax.
The new rates will be applicable from April 1.
Home buyers had complained that builders were not passing on the benefits from the refunds of input tax credit to them.
Input tax is essentially credit received by the builders on payment of taxes on building materials such as cement.
“This decision ahead of the elections could provide some relief to home buyers,” said Abhishek Kumar, president of a homebuyers association.
Earlier in the day, Prime Minister Modi inaugurated a scheme for farmers which promises to give a Rs6,000 handout to farmers annually, which his government announced during an interim budget on February 1.
Officials said the money under the PM-KISAN (Pradhan Mantri Kisan Samman Nidhi) scheme will be electronically transferred to the bank accounts of beneficiaries.
Launching the scheme in Gorakhpur, Uttar Pradesh, the prime minister said previous governments had drafted similar schemes but never empowered the farmers.
“They did not have the will to empower the farmer community but to keep them dependant.” This is why people voted for a single-party majority government in 2014, he said. 
“We are working to ensure that you get everything and that by 2022 you income is doubled.” 
Modi said states like Bihar and Uttar Pradesh had done their bit and warned governments of the states “doing politics on this issue” not to do so or they will face the wrath of the farmers.
“We may be on two sides of politics but why make farmers suffer?” he asked.
The prime minister cautioned farmers to be careful about canards being spread about the scheme by the opposition parties.
However, Bahujan Samaj chief Mayawati trashed the scheme as “inadequate and humiliating”.
“Giving @ Rs17 per day to few farmers just before Lok Sabha elections is pure hoodwinking,” the former Uttar Pradesh chief minister tweeted.
“The Rs500 a month to poor farmers under PM Kisan Samman Nidhi is an insult to the farmers. Farmers believe in their labour and want remunerative price of their produce but BJP mentality to give them little monetary help is atrocious and arrogant. BJP has failed to fulfil their promise,” she added.
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