Further, the Council also also lowered the GST rate on other under-construction housing properties to 5% from an effective 12%.
The decisions came at the 33rd meet of the GST Council.
Here are the details.
The rates come into effect from April 1 this year
"We wanted to give a boost to the real estate sector as well as give relief to the middle class, neo-middle class and the aspirational middle class class. This will come into effect 1 April 2019," Finance Minister Arun Jaitley told reporters.
Which properties are considered affordable housing
Properties which have a maximum price of Rs. 45 lakh, and have carpet area of up to 60 sq meters in metro cities, or up to 90 sq meters in non-metro cities will fall under the 'affordable housing' slab and will be charged 1% GST.
Under-construction properties that fulfill the aforementioned criteria will also fall under the affordable housing slab.
However, taxes cannot be adjusted
However, there's a catch. Unlike the case earlier, builders will not be able to adjust taxes paid on raw materials like cement and steel with the final tax liability on under-construction housing projects.
Builder lobbies had long been demanding a tax reduction
The decision by the GST Council to slash taxes on housing is broadly based on the recommendations of a ministerial panel headed by Gujarat Deputy Chief Minister Nitin Patel.
It also comes on the backdrop of long-standing demands by builder lobbies like the Confederation of Real Estate Developers' Association of India (Credai) and the National Real Estate Development Council to slash GST rates.