Fundamentally, GST is paid by investors and home buyers while investing in under-construction properties. Before the implementation of GST, several taxes including VAT, stamp duty, service tax, registration charges, etc. had to be paid by home buyers.
With the introduction of GST on real estate, one has to pay taxes only on under-construction properties. Notably, one does not need to pay GST on ready for sale or completed properties that have a legitimate Completion Certificate.
The pre-GST taxability of Real Estate Transactions
| Nature of Duty | Rate of Tax | When was tax required to be paid? or What triggered tax? |
|---|---|---|
| VAT* | 1 to 4% | On Sale of Under Construction Properties |
| Service Tax | 4.5% | |
| Registration Charges | 0.5 to 1% | |
| Stamp Duty Charges* | 5 to 7% |
* VAT, registration charges, and stamp duty charges vary by state. VAT was not applicable to completed or ready-to-sale properties under the erstwhile indirect tax regime. Cenvat credit on inputs used for the construction of a building or a civil structure or any part thereof was also restricted.
Taxability of Real Estate Transactions under GST
Particulars | Applicability | Rate of Tax | Input Tax Credit |
On ready-to-move properties for which completion certificates are issued | Not applicable – Because the sale of a building is treated as an activity or transaction, to be treated neither as a supply of goods nor services as per Schedule III of the CGST Act, 2017 | – | Not available |
On under-construction properties (For homes purchased under credit-linked subsidy scheme) | Applicable as supply of services as per Schedule I of the CGST Act, 2017 | 8% | Available |
On under-construction properties (On affordable housing by a promoter in a Residential Real Estate Project) | Applicable as supply of services | 1.5% | Not available except to the extent as prescribed in Annexure I in the case of REP other than RREP and in Annexure II in the case of RREP |
On under-construction properties (On non-affordable housing by a promoter in a Residential Real Estate Project) on or after 1st April 2019 | Applicable as supply of services | 7.5% | Not available except to the extent as prescribed in Annexure I in the case of REP other than RREP and in Annexure II in the case of RREP |
On under-construction properties (Other than above) | Applicable as supply of services as per Schedule I of the CGST Act, 2017 | 12% | Available |
On resale properties | Not applicable | – | Not available |
On the purchase of land and sale | Not applicable. As per Schedule III, the sale of land is neither a supply of goods nor services | – | Not available |
Works contract | Applicable | 18% | Available |
Composite supply of works contract | Applicable | 18% | Available |
Composite supply of works contract to the Government Authorities | Applicable | 12% | Available |
Composite supply of works contract – for use by the general public | Applicable | 12% | Available |
Composite supply of works contract – Affordable Housing | Applicable | 12% | Available |
Impact on Developers / Builders / Contractors
Under the previous tax regime, developers had to bear the Excise Duty, VAT, Customs duty, Entry taxes, etc. on raw materials/inputs and Service Tax on various input services like approval charges, architect professional fees, labour charges, legal charges, etc. ITC was unavailable for duties like CST, Customs duty, Entry Tax, etc. This would impact the pricing, and subsequently, the burden was transferred to the buyer.
Under GST, developers’ construction costs are significantly reduced as multiple taxes are subsumed and due to the availability of input tax credits on some materials. Also, a reduction in logistics costs will be an added benefit. Hence, developers may see an improvement in margins.
On the downside, developers have to do multiple calculations to arrive at ITC in order to pass it on to the buyers. Hence, in most cases, they can pass on the ITC only during the final stages.
Under the old laws, a large portion of expenditure remained unrecorded in the books. Under GST, credit availability on inputs and cloud storage of invoicing has reduced the underrecording of expenditure.
Impact on other Stakeholders
The impact on the allied services like labour, material suppliers, service suppliers, etc. depends on the increase or decrease in the tax levied on these goods and services. This will have a consequential impact on real estate industry as a whole. GST Rates for some of the goods relating to the construction industry are given below:
Product | Rate of GST |
Sand | 5% |
Sand & Fly ash Bricks | 12% |
Steel | 18% |
Paints | 18% |
Marble and granite | 18% |
Cement | 28% |
Impact on Buyers
Under the earlier tax regime, buyers had to pay VAT, Service Tax, registration charges, and stamp duty on purchasing properties under construction. Since VAT, registration charges, and stamp duty were state levies, property prices varied with every state. Moreover, developers had to pay various duties like Central Sales Tax (CST), custom duty, OCTROI, etc., for which credit was unavailable.
Under GST, a single tax rate of 12% is applicable on properties under construction. At the same time, GST is not applicable on completed or ready-to-sell properties, as was the case under previous law. Hence, buyers will benefit from price reductions under GST. So far, GST has positively impacted buyers since the completed properties do not attract a GST charge. As far as the buyers who book under-construction properties, the net tax rate has been reduced over a period of time since GST was introduced.
FAQs
Q1. What qualifies as ‘affordable housing’ under GST?
Affordable housing means any house property which costs up to Rs.45 lakh and measures up to 60 square metres in carpet area.
Q2. Is GST applicable to real estate business?
Q3. What is the current GST rate on the purchase of under-construction property?
For under-construction housing property, the GST rate for real estate property can be 1.5% (affordable) or 7.5%(non-affordable).
Q4. What is the GST rate for real estate properties in India?
The GST rate for real estate property can be 1.5% (affordable), 7.5%(non-affordable) or 12% (commercial).
Q5. What is the GST rate for housing property?
For under-construction housing property, the GST rate for real estate property can be either 1.5% (affordable) or 7.5%(non-affordable). For ready-to-move-in properties, no GST applies.
Q6. What is the GST rate for commercial real estate?
The GST rate for commercial real estate is 18%
