GST Regime in Real Estate – Rules and Updates You Should Know

GST Regime in Real Estate – Rules and Updates You Should Know

GST, which went into effect on July 1, 2017, has stressed out most taxpayers and dealers due to its compliance obligations. Different industry professionals have expressed their opinions on how it affects taxation in the real estate sector. With an attempt to highlight the issues involved, this article will give you a better understanding of the various perspectives

When purchasing an unconstructed property under the previous tax regime, the purchaser was required to pay VAT, service tax, stamp duty, and registration fees. After completion, the property was excluded from VAT and service tax, with just stamp duty and registration fees due.

Latest Updates Of Gst In Real Estate 

  • Telangana’s Advance Ruling Authority directed that GST should be paid on building construction from the date of transfer of possession.
  • The Maharashtra AAAR has ruled that an 18 percent GST will be levied on the sale of Transferable Development Rights (TDR) and Floor Space Index (FSI).

As we all know, the real estate business generates approximately 7.8 percent of India’s GDP and is the second-largest employer after the IT industry. The passage of this tax bill will be sufficient to address the issues confronting the real estate sector and assist it in emerging from its extended slumber. As GST improves transparency in the real estate sector, the overall price increase for new residential homes may be lower than for new commercial ones.

It will lower the cost of purchasing a home for buyers because, under the previous tax regime, they had to pay Service Tax and VAT on residential units purchased before completion, while developers had to pay excise duty, customs duty, CST, and entry tax, all of which are non-creditable tax costs, on their professional side, which is included in the price of units.

With the consistent tax rate, developers will be able to claim input credits on GST paid for services and goods acquired, lowering their costs and allowing them to pass the savings on to purchasers.

When it comes to Value Added Tax (VAT), the tax system is being simplified following the implementation of GST. The government did not include stamp taxes in the GST once it was implemented.

All under-construction homes will be subject to a 5% GST with no input tax credit. GST, on the other hand, will not be levied on ready-to-move-in properties. The real GST rate in this category is 18%. However, one-third of this 18% is considered to be the value of land or the undivided piece of land delivered to the buyer of the property. As a result, the GST rate is reduced to 5% for under-construction flats, condos, or commercial properties with a full input tax credit.

The carpet area of a house in a metro city of up to 60 square meters (approximately 650 square feet) and 90 square meters (970 square feet) in a non-metro city is included in the affordable housing scheme.

While the affordable house will be considered if the property’s value is less than 45 lakhs and will incur a 1% GST, everything above that will incur a 5% GST.

The GST regime has replaced tax multiplication, and builders must now pay a larger sum in the 4-tier taxation but will eventually receive input credits. The burden of raising taxes will now be passed on to property buyers. Apart from individuals who are tied to the CLSS scheme, all home buyers will have to pay GST.

Applicable Gst Rate On Affordable Housing Units

To meet the housing needs of the lower and middle classes, the government of India (GOI) issued an affordable housing strategy in June 2015. In terms of common residential housing, which shall be cost-effective, lesser goods and services tax (GST) is levied, providing relief to the affordable people who buy a home during the period of purchase. According to tax and investment experts, home purchasers are expected to provide GST at the time of purchase; in addition, they must comprehend what an inexpensive house entails under GST.

Tax For Real Estate After Gst

Here is a list of applicable taxes and the rates of taxes to be paid on real estate, as per GST.

  • Taxes are not applied
  • Completely built, ready-to-move-in real estate properties with a completion certificate – Ready-to-move-in properties are not counted as raw materials or services under SCHEDULE III of the CGST Act, 2017. GST is not levied on ready-to-move-in properties for the same reason.
  • Properties for resale and those that are currently on the market — again, because resale properties are not regarded as goods or services, GST does not apply to real estate resale.
  • Land purchase or sale – As stated in SCHEDULE III of the CGST Act, 2017, the sale or purchase of land is not classified as a good or service.
  • Is 8% tax applicable?
  • Under-construction properties purchased or sold under a subsidy plan — Under Schedule I of the CGST Act, 2017, under-construction properties are deemed a service undersupply.
  • Is 12% tax applicable?
  • Other than those specified above, under-construction properties are counted as the supply of services under Schedule I of the CGST Act, 2017.
  • Contract for the composite supply of works – Government contract – Taxable under GST standards
  • Contract of composite supply of works – For ordinary people – Taxable under GST standards 
  • Contract for the composite supply of works – For affordable housing – Taxable under GST criteria
  • Is 18% tax applicable?
  • Working contract – Following GST norms, an 18% tax is applicable here.
  • Contract of composite supply – According to GST norms, an 18% tax is applicable here.
  • The variance in GST taxes is striking. With the following information, you may easily comprehend the amount of tax that applies to your real estate purchase or sale.

Impact On People Buying Real Estate

The new GST taxation regime is more profitable and beneficial to buyers than it is to developers. The buyer had to pay several taxes under the previous real estate taxation regime. These costs included service tax, exercise tax, VAT, stamp duty, and a few others in addition to the sum they had to pay for the under-construction property itself. Previously, tax rates varied from state to state because of the state-regulated real estate taxes. The GST has made taxes more consistent and regulated.

The Products and Services Tax (GST) is a tax that only applies to goods and services. A project that has been finished following GST criteria is not taxable. This means that the absence of GST on a completed project lowers the price of the property. This is an excellent deal for the purchasers. The government levies a 12 percent GST at a uniform rate across the country on unfinished projects.

Impact On Developers, Contractors, Builders

Before the implementation of GST, the taxation regime imposed a plethora of taxes. These taxes were paid directly by the developers. As a result, the entire process benefited the buyers more than the developers.

The previous taxation scheme required developers to pay VAT, service charges, labor costs, architectural fees, and so on. The money included in the property’s price would thereafter be charged by the developers.

Developers obtain input tax credits under GST. They are also exempt from having to pay various taxes. This reduces the tax payments. The cost of logistics has also decreased as a result of GST. This means that the cost of the property remains the same, but the cost of the developer has decreased, directly increasing the range of the margin to be earned.

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Impact On Stakeholders

The increase and decrease in GST rates have an impact on a variety of variables. Labor, service providers, material suppliers, and a variety of other activities are all subject to taxation. This has ramifications for the real estate business as a whole. When a specific tax rate rises or falls, it compels the pricing of the entire industry to shift. With the former tax regime, the tax rate on cement ranged between 27 and 31 percent. The cost of taxation has been reduced to 18% thanks to GST. This has resulted in an increase in cement prices and a decrease in the margin price on the sale of a property.

The adoption and implementation of GST as a new taxation system in the real estate business have had an impact on the industry in both positive and bad ways. GST has reduced the inconvenience of paying various taxes and the confusion caused by multiple tax channels. GST clarified a lot of things, but there is still a need for improvement in other areas.

Since GST is managed by the national government, the taxes to be paid are uniform across the country. To summarize, as a developer, you gained more from the old taxes methods; but, the buyers did not benefit as much. The developers are under pressure under the new GST taxation regime. They are also suffering from lower margins as a result of the GST regime. However, the GST structure has proven to be extremely beneficial to purchasers.If you are looking for an ideal investment partner to start your investment in the real estate sector, then Assetmonk may be the best choice for you. Assetmonk offers investment opportunities with an IRR of 14-21%.