Realty developers have urged the central government to allow Input Tax Credit () for real estate development under the composite scheme of the Goods & Services Tax (GST).In its recommendation to the finance ministry, the developers’ body CREDAI has stated that due to the prevailing exorbitant construction costs, it strongly believes that such a move would help in rationalising housing prices by 10% and spur the supply of affordable housing projects across tier I markets.It has also requested the government to allow developers to choose between 12% GST rate with ITC under the assessment scheme and 5% GST rate without ITC as per the composition scheme, providing them with the financial flexibility.

“While the implementation of GST has been a complete game-changer for the entire economy in the last four years, we strongly believe that Indian real estate still requires certain tweaks and measures to ensure a more conducive environment for all stakeholders,” said CREDAI national president Harsh Vardhan Patodia. “The inability of developers to avail ITC under the current composition scheme is adversely impacting construction costs and housing prices, dissuading homebuyers to not purchase real estate properties.”According to him, allowing ITC would not only ensure more demand and sales, but also increase the supply of affordable housing projects in tier I markets whilst enhancing the revenue collections of the respective state governments.Currently, the total value of per sq ft GST cost in the country ranges between Rs 360 and Rs 500, varying from project to project.Owing to the prevalent scheme, this results in a proportionate increase in the construction cost, which is ultimately passed on and borne by the homebuyers, impacting their purchasing power and overall demand for homes.Considering the average housing rates across India range between Rs 4,000 and Rs 4,500 per sq ft, the absence of ITC leads to an approximate increase in housing prices by Rs 400-450 per sq ft, CREDAI said.The developers’ body also believes that charging 28% GST on cement diminishes the viability of many affordable housing projects and it has urged the central government to reduce the rate on cement to 18% to further the supply of affordable houses, especially in tier I markets.The government has bifurcated the works contract services into two broad heads, including government and private works contract, for the purpose of applicability of the rate of tax.To ensure parity, realty developers are also suggesting GST on non-government and private works contract services too should be charged at 12% in line with government works as against current tax rate of 18%.The developers’ body has also suggested that the restriction to avail ITC should be removed to ensure seamless flow of credit to businesses where the property being constructed is used for further providing an output service such as renting, hotels and malls etc.Global institutional investors and realty developers with exposure to commercial real estate including office and warehousing projects have also separately approached the government with regards to absence of input tax credit for leasing activity.These entities are seeking the input tax credit on goods or services used for construction of immovable property against leasing services, which is currently restricted under Section 17(5) of the Central Goods & Services Tax Act, 2017.