Depending on how much builders across the country cut GST rates on under-construction housing from 12% to 5% in the case of normal housing and from 8% to 1% in the case of affordable housing the market for real estate should get a big fillip; indeed, the reactions of most builders over the weekend, when the proposal was announced, suggested that large cuts would be made in the retail prices. It would, though, be prudent to look at the actual cuts over the next few weeks since it is possible that builders will argue that, as they are being denied input tax credit, the cut is revenue-neutral for them. Indeed, since some tax officials have said the move is revenue-neutral for the government, the same logic should apply to builders as well.
Indeed, a recent analysis done by the GST authorities of the country’s top builders suggested as much when it pointed out that most builders were claiming very high input tax credit, possibly using fake invoices. In Mumbai, for instance, the study showed builders who should have been paying a 10.8% GST, on average, were paying a much lower 2.1%. The reduction, then, could well become the next source of litigation following action by the anti-profiteering authorities, if the price cuts are seen as too small.