MUMBAI (Reuters) - India on Sunday announced a cut in the goods and services tax charged on sales of residential properties under construction as the government looks to stimulate the economy by driving up consumption. 

The Goods and Services Tax Council, comprising state and federal finance ministers, announced that the new rate will be 5 percent, down from 12 percent, 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 percent from 8 percent, the statement said after a meeting in New Delhi on Sunday. 

“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. 1


‘Simpler Tax Compliance for Builders’ 
The government said this will address the cash flow problems faced by the industry. 

“There are reports of slowdown in the sector and low offtake of under-construction houses which needs to be addressed,” the statement said. 

It would also result in the cost of houses coming down, the government said. 

“Unutilised ITC (input tax credit), which used to become cost at the end of the project, gets removed and should lead to better pricing. Tax structure and tax compliance becomes simpler for builders,” it said in the statement. 

“Developers will need to increase the base price to recover the loss of input credit but would need to be cautious given the surge in anti-profiteering investigations for restaurants, in similar circumstances,” said Pratik Jain, partner and leader, indirect tax, PwC. 

The decision was based on recommendations of a ministerial panel headed by Gujarat deputy chief minister Nitin Patel.2