Real estate is an important pillar of the economy. It is a fast-growing industry that has led to further urbanization. Under the previous tax regime, there were various taxes such as the VAT, service tax, excise duty, etc which led to a lot of confusion regarding the payment of taxes. With the introduction of the GST tax, there was only a need to pay a single tax, thus removing the confusion associated with the payment of taxes.
The consumer does not need to suffer from the calculation and payment of multiple taxes. GST (Goods and Service Tax) is an indirect tax that is levied on the supply of goods and services. It has also replaced several indirect that previously existed. The introduction of the GST tax and the recent changes made to it have led to a lot of benefits. These include a simpler tax structure leading to compliance from builders. It also leads to better pricing of real estate properties, as the problem of unused ITC being added to the project cost is eliminated.
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What is the GST rate on real estate?
GST will be levied at an effective rate of 5% without ITC (input tax credit) on residential properties which are outside the affordable housing limit, while GST will be levied at 1% without ITC on residential properties which are within the affordable housing limit.
Is GST applicable on the purchase of property?
At the GST Council meeting which was conducted, new GST rates were introduced for the residential real estate sector, which has come into effect from April 1st, 2019.
The construction of a complex, building, civil structure intended for sale to a buyer is considered as a service and is liable for the payment of GST – if any consideration is received before issuance of completion certificate. However, GST is not applicable if the whole of the consideration for a property is paid after issuance of the completion certificate. This certificate can either be issued by a competent authority or after the property can be occupied by someone, i.e., has its first occupancy, whichever is earlier.
GST on real estate, in the case of under-construction properties, is 5% without ITC on the total consideration. GST does not apply to the sale of completed properties. Completed properties are referred to as properties where the completion certificate has been issued. It is a document that is awarded after the inspection of the real estate project, stating that it has been constructed according to the approved building plan and conforms to the standards set by the municipal corporation. GST does not apply to the resale of old properties.
How do I calculate GST on the sale of the property?
GST shall be levied at an effective rate of 5% without ITC on residential properties which are not classified as affordable housing. A GST of 1% without ITC is to be charged on affordable housing properties.
However, for a property that is being resold, there is no need to pay GST. There is no GST applicable once the property is ready to move in and has received the completion certificate from the required authorities. Also, in the case of the sale of land and the purchase of land, there is no need to pay the GST tax.
What is affordable housing under GST?
In order to provide a boost to the real estate sector, the GST Council decided to recommend a change in the amount of GST that is levied on under-construction homes, including those in the affordable segment. The new GST rates would be applicable from April 1st, 2019.
The definition of affordable housing as per the GST Council is:
- A residential house/flat of carpet area of 90 sqms in non-metropolitan cities/towns and 60 sqms in metropolitan cities
- The property should be having a value of up to Rs. 45 lakhs (this amount is the same for metropolitan and non-metropolitan cities.
- Metropolitan cities include Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai.
How much is GST on a flat purchase?
The government has made the buying of homes easier by removing the GST Tax that was applicable to under-construction real estate properties. The GST rates have been reduced from 8% to 1% for affordable homes. Further, the tax rate regarding regular units has also been reduced from 12% to 5%.
Moreover, there has also been a change in the size of what earlier used to constitute as an affordable home. There has also been the elimination of the ITC (input tax credit) for the benefit of the builders. Earlier, builders were required to pass this tax onto the buyers of the real estate property.
Who pays the GST on a new home?
GST is a value-added tax that is levied on most goods and services that are sold for the purpose of domestic consumption. This tax is included in the final price and is paid by the consumers at the point of sale and is passed to the government by the seller.
GST applies to the services that are provided in order to complete a real estate transaction. it is paid by the seller of the property generally.
When the GST tax was implemented on real estate, there was a lot of uncertainty, as the RERA act was also enacted at this time. There were too many changes that were suddenly introduced in the real estate sector, and there was a lot of doubt as to whether the real estate sector would be able to cope with the changes. However, it can be seen that there has been a substantial demand for both commercial and residential real estate.
There have been many substantial changes that have all resulted in the real estate sector in witnessing a marginal rise across the country. GST has made it easier to buy a flat or obtain affordable housing property. GST is applicable for real estate properties that are under construction.