Are you planning to buy a property? It is
important to have an understanding of the Goods and Service Tax (GST) rates
applicable on real estate.
To simplify the laws, reduce the tax evasion
and remove unnecessary obstacles, the Government of India launched the Goods
and Service Tax in July last year. Central taxes such as Central Excise duty,
Additional Excise duty, Service tax, Additional Custom duty and Special
Additional duty as well as state-level taxes such as VAT or sales tax, Central
Sales tax, Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi
subsume in GST.
Since real sector was also burdened with
various indirect taxes such as VAT, Service Tax, Excise, stamp duty and many
more, it was brought under the purview of GST. However, after implementation
there has been a slight confusion regarding the rates and benefits. This
article aims at providing clarity and to simplify the structure so as to make
the investment in real estate easier.
GST rate on Real Estate:
GST @12% with full input credit is applicable
on real estate sector. According to the schedule of GST rates for services as
approved by the council, real estate sector comprise “construction of a
complex, building, civil structure or a part thereof, intended for sale to a
buyer, wholly or partly. The value of land is included in the amount charged
from the service recipient.” This means all under-construction properties will
be charged @12% however, no GST would be levied on ready-to-move-in properties.
There are various stages of under-construction and GST will be dependent on it.
A Property purchased after the Completion
Certificate was issued to the Builder:
Under these circumstances, no GST will be
charged as it is considered a ready-to-move-in property and there is no
transfer of goods or services.
Payment made to the builder in part or in
full before 1st July 2017:
Whether paid in full or half, if the payment
is made before 1st July, 2017 (i.e. before GST regime) no GST will
be payable on such property. However, service tax @4.5% would be applicable.
GST on under-construction flats, properties
or commercial properties:
The actual GST rate applicable is 18% but
one-third of this is deemed as the value of land or undivided share of land
supplied to the buyer. Therefore, GST rate lowers down to 12% on under-construction
flats, properties or commercial properties with full input tax credit.
GST rate on resale of flats or property:
Resale of flat or property would be
considered as ready-to-move-in properties and hence, no GST would be payable on
the same.
GST rate for homes purchased under the Credit-Linked Subsidy Scheme (CLSS):
If you purchased the property under the schemes like:-
CLSS is meant to provide affordable and
cheaper houses for weaker section of the society. These houses will attract GST
@8% and not 12% as one-third would be deducted towards the cost of the land.
What is the impact of GST on real estate
buyers and investors?
GST as expected turns out to be a sentiment
booster for the real estate industry, reviving interest of buyers and investors
by bringing more transparency in taxation. According to a report of Edelweiss
Securities, with launch of GST the prices were expected to drop around one to
three percent if at all.
Prior to GST, taxation was too complicated
for buyers. They were liable to pay taxes as per the construction status of the
property and the state where it is located. Buyers were supposed to pay VAT,
service tax, stamp duty and registration charges for under-construction
property or only stamp duty and registration charges for completed property.
Furthermore, since these were state levies, each state specified its own rate.
So the computing taxes were a very difficult process. GST charges all
under-construction properties @ 12% excluding stamp duty and registration
charges. No indirect tax is applicable on sale of ready-to-move-in properties
hence the tax will not apply to those. The biggest takeaway is that GST is a
simple tax that applies to the overall purchase price.
Benefit to Developers
Earlier developers were charged for Central
Excise Duty, VAT and entry taxes collected by the state on construction
material costs. Further, he had to pay a tax of 15% on services like labor,
architect fees, approval charges, legal charges etc. The tax burden was
ultimately transferred to the buyer. However, under the new regime, the changes
in construction costs are not grave. Also reduced cost of logistics will result
in reducing expenses as well.
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