GoM Recommends Increasing Affordable Housing Limit to Rs.56 Lakh Nationwide

A government panel focusing on Goods and Services Tax (GST) for the real estate sector is likely to make significant reforms that could have an impact on affordable housing in India.

According to reports, the Group of Ministers (GoM) has issued an interim report that advises increasing the affordable housing price limit from Rs.45 lakh to Rs.56 lakh per unit, allowing more homes to benefit from the decreased 1% GST rate. This rate currently applies to affordable housing developments that do not get an Input Tax Credit (ITC).

The proposed price increase aims to broaden access to affordable housing in all regions of the country. According to sources familiar with the discussions, the GoM is considering implementing this limit evenly across India. Furthermore, the panel is awaiting a formal report from the Reserve Bank of India (RBI) before making any further revisions to the price limit.

The GoM is also evaluating how GST is imposed on housing projects, notably in terms of land costs. One important suggestion being considered is whether GST should be applied exclusively to construction costs, ignoring the land component.

Currently, the land cost is estimated as two-thirds of the entire project cost, with construction accounting for the remaining one-third. If the new proposals are implemented, the cost of land in housing projects might be calculated using the circle rate or two-thirds of the total unit cost, whichever is greater.

If these interim suggestions are adopted, they may make housing more affordable to homebuyers by lowering the overall tax burden on residential projects.