GST On Real Estate: How to Calculate GST On Under Construction Flats

People are facing a lot of confusion in the matter of understanding the levying of GST in real estate, and its rates.

This confusion is witnessed for both the constructed buildings and under-construction buildings.

What Is GST?

Goods and Services Tax (GST) is a tax levied on the customers for the product or services that they buy. It is a kind of indirect tax consumption. Whatever we buy in the market has got the GST applied to it, be it anything and everything.

The final printed price that we pay for the goods or the services includes GST. Different goods and services are divided into different tax slabs. The five Tax slabs for tax collection are 0%, 5%, 12%, 18%, 24%.

The alcoholic drinks, petroleum products, and electricity are taxed under different tax slabs by the respective state governments; they are kept out of the five mentioned tax slabs.

There is a special rate of 0.25% on some precious and semi-precious stones and 3% on gold. All the rules, regulations and rates are governed by the Finance Ministers of the center and the states.

Altogether, they form a council called the GST Council. The GST helped in replacing the existing number of taxes levied by the central and the state government. Around 38 lakh new taxpayers have got themselves registered under the GST regime.

This tax is levied on every point of sale. From purchasing raw material to sales of the final product to customers, GST is levied.

Effect of GST On Real Estate

Real Estate is considered to be one of the most important pillars of our Indian economy. The real estate industry makes a noticeable contribution of around 6% to 8% to the Gross Domestic Product (GDP) of our nation.

If we talk about the employment generation section, it is the second industry after IT, in that matter. Real Estate had witnessed a drastic and sudden change in its structure with the emergence of GST, because before the picture was completely different when there was the imposition of other forms of taxes like Service Taxes and Value Added Tax.

Before the GST was imposed:

  • VAT imposed was up to 4% on the sale of under-construction buildings.
  • Service Tax was 4.5% on the sale of under-construction buildings.
  • Registration charges up to 1% on sales of under-construction buildings. 
  • Stamp Duty was from 5% to 7% on sales if under-construction buildings. 

Earlier, the buyers had to pay the services taxes, VAT, stamp duty, and the registration charges on the purchase of under-construction properties. Thus, there was a differentiation experienced in the prices of lands in different states.

Under the GST Act, now the buyers have to pay a fixed GST of 12% for the under-construction projects. Under the GST Act, it is particularly mentioned that the owners if Flats are liable to pay GST of 18% of their monthly contribution to the Residents Welfare Association (RWA) exceeds the amount of 7,500.

Builders will be allowed to choose between the old tax rates and the new tax rates for their under-construction projects. This is to resolve the input tax credit (ITC) issues.

The developers of the projects which are under construction, till 31st March 2019, will be given one chance to choose the old structure with ITC or to shift to the new 5% to 1% rates, without ITC. This is a new concept, and the buyers are still indecisive for the fact that what are the benefits and losses of this GST.

Also Read: Budgets 2019-20 India: How The Latest Interim Budget Affect Your Life

How to Calculate GST Rate on Real Estate?

The rates are calculated in the following manner:

  • On ready to move properties for which completion certificates are issued.
    • GST NOT APPLICABLE because the sale of the building is treated as neither the supply of goods nor the supply of services. 
  • On under construction properties (Homes purchased under Credit Linked Subsidiary Scheme).
    • GST IS APPLICABLE, as the supply of services: 8%
  • On under construction properties (apart from those, mentioned above)
    • GST IS APPLICABLE, as the supply of services: 12%
  • On resale properties
    • GST IS NOT APPLICABLE.
  • On land purchase and sale
    • GST IS NOT APPLICABLE. 
  • On works contract
    • GST IS APPLICABLE:  18%
  • On composite supply of works contract
    • GST IS APPLICABLE: 18%
  • On composite supply of works contract to the government authorities.
    • GST IS APPLICABLE: 12% 
  • On composite supply of works contract – for the use by the general public.
    • GST IS APPLICABLE: 12% 
  • On composite supply of works contract – affordable housing.
    • GST IS APPLICABLE: 12%

In a nutshell, if you have purchased an under-construction property under the Credit Linked Subsidiary Scheme, then you are liable to pay an 8% tax, and GST payable will be 12%.

For resale of the property, you will not be asked to pay the GST, and in case of sales and purchase of land, GST is not at all applicable. The GST Council has been working diligently to promote this sector, i.e., the real estate sector, to increase the business. 

Conclusion

All the under-construction properties have got a great relief on GST tax. The government has been working upon strengthening the real estate sector of our nation because this sector is vital to maintain our economy.

After IT companies, the real estate sector is the highest employment generation sector in our country. With this article, by now, you all must have learned about the concept of GST, its impact on the under-construction properties, and how is this GST calculated in such cases (under construction projects). Hopefully, all your queries and confusions regarding the matter are solved.

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