The Goods and Services Tax (GST) – a comprehensive reform of the indirect tax regime – has finally seen the light of the day. This simplifies the indirect taxation regime by collaborating a host of central government and state government taxes into one applicable GST tax. GST works on the principle of one nation one tax rate across the states; thereby creating a unified market for goods and services across the country.
GST can be disruptive for businesses and economy in the near term. Businesses need to adjust to the new tax regime. More importantly, the system of input credit to suppliers, if the customers are tax compliant, would require a lot of cash driven businesses to mend their ways.
In an attempt to reduce tax elusion, make laws simpler, and remove trivial obstacles, the government of India rolled out Good and Services Tax (GST) in July last year. As the real estate sector was afflicted by numerous indirect taxes such as VAT, Service Tax, excise, stamp duty, and registration fees etc., it was introduced under the GST ambit. However, ever since it was implemented, there has been a lot of uncertainty and ignorance regarding the rates and benefits. It is important to have a clear understanding and have the necessary information regarding the various Good and Services Tax (GST) rates if you are planning to buy a property. This is a detailed look at the GST rates on real estate and under-construction properties.
GST RATE ON REAL ESTATE: The real estate sector will invite GST at the rate of 12% with full input tax credit. The real estate sector will involve “building of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly according to the list of GST rates for services as accepted by the council. The market price of the land is included in the amount charged from the service recipient. 12% with full input tax credit will be imposed. In other words, it means all under-construction properties will invite a GST of 12%. However, GST will not be applicable for ready-to-move-in properties. However, there are still some variations for under-construction properties and there is some confusion regarding the same.
There are various stages for under-construction properties and the GST will be dependent on it such as the following.
1. GST will not be applicable in a situation when property is bought after the completion certificate was issued to the builder, as it is considered a ready-to-move-in property and there is no transfer or supply of goods and services.
2. Full or part payment made to the builder before the introduction of GST: Whether you paid in part or in full, if the payment is made before the rollout of GST regime, then it will not invite any GST tax. However, keep in mind that you will be charged applicable service tax rate of 4.5%.
3. GST on under-construction Flats, Properties or Commercial Properties: In this category, the actual GST rate is 18%. The value of land or undivided share of land supplied to the buyer of the property is deemed as one-third of this 18%. Hence, the GST rate lowers down to 12% on under-construction flats in Ferozepur highway, properties or commercial properties with full input tax credit.
4. GST on resale properties or Flats: As they are considered ready-to-move-in properties, they will not invite GST taxation.
5. GST on houses purchased Under CLSS: The Credit-Linked Subsidy Scheme (CLSS) is meant to provide affordable houses and apartments on Ferozepur highway to the lower and weaker sections of the society. The GST rates on such affordable houses will be effectively 8% and not 12% as one-third will be a deduction towards the cost of the land.
What is Credit-Linked Subsidy Scheme (CLSS): If you purchased the property under the schemes like:-
• Economically Weaker Sections (EWS).
• Lower Income Group (LIG).
• Middle Income Group-1 (MlG-1) or Middle Income Group-2 (MlG-2) under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY Urban).
How Will GST Benefit Both Builders And Buyers?: A builder or developer pays various indirect taxes and duties during the construction of a property, i.e. house or complex. He passes on this cost to the end users. All these taxes have been merged into one with the introduction of GST resulting in lowering the cost of the property near Ferozepur highway. The move is expected to boost the sale of homes. For buyers, though GST of 12% is on the higher side. There is transparency and consistency in taxation, which they would acknowledge and hopefully accept and support GST fully.
Buying or selling of a property is it large or small has become a tedious process. This is because of the rules and regulations that are being introduced by the government of India. It becomes extremely important to be aware of the laws and moreover about the corresponding GST rates. It would be advisable to discuss and gather all the necessary information from a professional or expert. By taking the developer or builder into confidence, all the legal formalities and necessary paperwork can be done. Investing in affordable housing, commercial property, or flats that are under construction, it is always better to be aware of the GST rates.
Different people have different opinions regarding the effect that the Good and Service Tax has on the real estate sector. As long as the outflow for both the developers and the customers remain the same and it remains revenue neutral as was the case prior to the GST regime and it does not increase, it can be considered as a good move. There are still many issues and that need to be dealt with before GST becomes a reality in the real estate sector. It is maintained that bringing the real estate sector under GST’s ambit will benefit the consumers who will only have to pay one final tax on the whole product.