Impact of GST on Real Estate Sector

Kishan Thakkar K

Overview

One of many taxes a buyer of property has to pay is the Goods and Services Tax, or GST on flats and apartments. In this guide, we’ll look at how the GST affects real estate in general and home buyers specifically.

GST on real estate

In India, buyers of under-construction properties, such as flats and apartments, must pay the Goods and Services Tax (GST) at a rate of 1% for affordable housing and 5% for non-affordable housing. GST is also charged on the purchase of developable plots in real estate.

Taxes before GST implementation

Buildings were subject to a variety of state and central taxes before the GST became effective in 2017. While these taxes were a burden to developers, they were not available to builders as a deduction from output taxes. Before the GST came into force, developers had to pay several taxes, including:

  • Value Added Tax (VAT)
  • Central Excise
  • Entry Tax
  • LBT
  • Octroi
  • Service Tax, etc.

GST on real estate in 2021

To simulate demand amid a prolonged slowdown, the government has substantially lowered its GST rate on property transactions. Experts predict that this could lower buyers’ pay-outs by 4%-6% on the overall purchase.

GST rate for flat purchase in 2021

Property typeGST rate till March 2019GST rate from April 2019
Affordable housing*8% with ITC1% without ITC
Non-affordable housing12% with ITC5% without ITC

Builders will be able to pick between the old and new rates by May 20, 2019, for ongoing projects, regardless of the new tax rate without input tax credit (ITC). The government’s decision to offer the ITC only for projects that were complete as of March 31, 2019, came after concerns were raised by the developer community.

GST Rate on Under Constructed Residential Houses Recorded
ParticularsAffordable HouseOther House
Present GST Rate8%12%
Rate wef 01.04.20191%5%
Area: Metro cityUp to 60 sqmMore than 60 sqm
Area: Non-Metro cityUp to 90 sqmMore than 90 sqm
ValueUp to 45 LakhMore than 45 Lakh

How do input tax credits work under GST?

The GST law differs from the previous country’s tax system due to its ITC system. The developer pays tax on goods and services several times throughout a housing project. Under the GST regime, the builder would be entitled to a credit for input taxes paid when he pays his output tax.

Source: Taxguru

Example

A builder has to pay Rs 35,000 as an output tax on his final product after already paying Rs 29,000 as input tax for materials such as steel, cement, paint, etc. In this scenario, he would have to pay only Rs 6,000 as output tax, after adjusting the input tax charge.

GST calculation on affordable property

We show you how to calculate GST for flats’ purchase in the affordable housing segment, before and after the April 1, 2019 rate change:

Affordable housingGST on affordable housing before April 1, 2019GST on affordable housing after April 1, 2019
Property cost per sq ftRs 3,800Rs 3,800
GST rate on flat purchase8%1%
GSTRs 304Rs 38
ITC benefit for material cost of Rs 1,500 at 18%Rs 270Not applicable
TotalRs 4,374Rs 3,838

Did you know?

  • GST treats residential projects that have up to 15% commercial space as residential properties.
  • Commercial property is subject to a 12% GST.
  • GST is not payable on the purchase of plots.
  • The GST on the purchase of a ready-to-move-in flat is not applicable.
  • Unless the tenant is a business company, landlords do not have to pay GST.
  • Stamp duty and registration are not included in GST. It is still necessary to pay these duties when purchasing a property.
  • There is a GST on services that banks provide, such as processing fees, legal fees, etc.
  • GST may apply, but under-construction homes are cheaper than ready-to-move-in homes.

FAQs

In India, what is the current GST rate for real estate?

From April 1, 2019, affordable residential apartments in India will be subject to 1% GST without ITC, while other residential properties will be subject to 5% GST without ITC.

How does GST work for under-construction properties?

Due to the GST rate cut, the GST on under-construction properties is 1%, while for non-affordable units it is 5%, without the credit for input tax.

What are the 3 types of GST?

GST is categorized into three types in India: 

  1. Central Goods and Service Tax (CGST), 
  2. State Goods and Services Tax (SGST) or Union Territory Goods and 
  3. Services Tax (UTGST), and Integrated Goods and Services Tax (IGST)

Conclusion

The technical terms related to the Real Estate industries might be a bit difficult for a layman to comprehend. So, Roodland India has extended its hands to solve your problems related to Real Estate. Our expert guidance can help solve the problem of yours in a unique and promising way. Drop a mail at info@roodland.com and visit The Real Talks platform to find more such blogs.

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