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Introduction

Real estate is one of the main sectors of any country. It is often considered to be a crucial pillar of any economy. The real estate sector had taken a huge hit in the financial crisis of 2008 and has been under stress ever since. The government has taken many measures to boost the real estate sector. The introduction of GST has greatly impacted the real estate sector. Although it has been introduced in 2017, in a very short span of time, the government has already implemented many major changes to the applicable rates of GST on the real estate sector.

Given below are the various details related to the applicability of GST to the real estate sector of our country.

Overview of GST on Real Estate

GST is levied on the sale or transfer of under-construction properties. It is to be paid by the investors and home buyers while investing in such under-construction properties. In the previous tax regime there were many taxes that were levied on the properties to be bought. These taxes included VAT, stamp duty, service tax, registration charges, etc. and had to be paid by the home buyers.

The levy of GST is applicable only on the under-construction properties. This implies that there will be no levy of GST on the ready for sale or completed properties that have a legitimate Completion Certificate

What are the GST rates on real estate?

The applicable rate of GST on the real estate was earlier between the range of 8% to 12%. It was taxed based on the type of property. These properties were also eligible to claim the input tax credit. However, in order to boost the real estate sector, the government of India decided to reduce the rate of GST levied on eligible real estate properties. However, such reduction is conditional and the input tax credit will not be available at the new and revised GST rates. This change has been in effect since 1st April 2019.

Given below are the details of the original GST rates and the prevailing rate of GST on eligible properties.

Type of Real Estate Property

GST Rate

(in effect till 31st March 2019)

Input Tax Credit 

GST Rate

(from 1st April 2019 onwards)

Input Tax Credit

Residential Property (affordable housing segment)

8% 

Available

1% 

Not available 

Residential Property (non-affordable housing segment)

12%

Available

5% 

Not available

Commercial Properties

12%

Available

12% 

Available

Input tax credit the added benefit under the new tax regime. It is the credit that can be availed by the developer for the tax that is paid by such developer for the materials to be used in the construction of the eligible properties.

Definition of Affordable Housing under GST

Affordable housing is the vision of the government of India. It aims to provide houses to all the citizens of the country. The criteria for a property to qualify under affordable housing as per the scheme have been defined as under.

  • The total carpet area of residential property has to be less than or equal to 90 square meters in non-metropolitan cities and towns.
  • The property value in total has to be less than or equal to Rs. 45,00,000 in either metropolitan or non-metropolitan areas.
  • The total carpet area of residential property should be less than or equal to 60 square meters in metropolitan areas.
  • Expected benefits of GST rate cut on residential properties

The revised rates of GST on affordable housing will be applicable from the start of the financial year 2019-20. The benefits derived from the revised rates are mentioned below.

  • Ensuring fair process of the property for the buyer as the rate of GST will be reduced to 1% thus contributing to make it affordable.
  • The buyers get the ultimate benefit of input tax credit being passed along the line of sale to property buyers which further protects their interest.
  • GST Rates for Construction Materials being competitive

GST Rates on Construction Materials

The GST applied on construction of a property is in case of the construction materials used and the construction services. These charges are part of the ultimate price of the property. The applicable rates of GST are varied on the materials used and at the different stage of construction.

The GST rate is made up of the CGST and the SGST. Given below is a general idea of the GST levied on construction materials used.

GST on essential construction material

Key rates

Building bricks

5%

Crude Granite/ Marble Rubble

5%

Fly Ash Blocks

5%

Roofing Tiles

5%

Natural Sand (For Construction)

5%

Marble / Granite Blocks

12%

Refractory bricks/tiles

18%

Glass for construction purposes

18%

Prefabricated structural components for building

18%

Marble/Granite (other than blocks)

18%

Portland/slag cement

28%

Apart from the above construction material, the details of GST levied on the construction services used in the construction of the eligible properties are mentioned below.

GST on Key Construction Services

Applicable Rate of GST

Under construction properties under Credit Linked Subsidy Scheme

8%

Under construction properties (excluding those under Credit Linked Subsidy Scheme)

12%

Composite supply of works contract for affordable housing

12%

Composite supply of works contract to government agencies/local govt. bodies

12%

Composite supply of works contract (other than government agencies/local govt. bodies/ affordable housing)

18%

Works Contract (other than govt. bodies)

18%

As mentioned above, the levy of GST cannot be applicable in the following cases.

  • Sale or purchase of Land
  • Resale of Property
  • Sale of ready to move in flats

Impact of GST on Real Estate

The impact of GST on the real estate sector of India is multifold and can be discussed in case of affordable housing, luxury property, under-construction property as well as in case of registration charges and stamp duty charges.

The impact of GST on affordable housing as discussed above has resulted in such properties being taxed under the least tax bracket under GST i.e., at the rate of 1%. This has resulted in direct benefits to the buyers.

In case of Luxury properties, the revised rate of taxation has resulted in the increased savings on part of the property owners. The revised rate of GST applicable in case of luxury properties is 5%. However, for such rates to be applicable, the input tax credit is not available.

The under construction properties in India have had to face a huge set back due to a downturn in demand for properties. The government of India has increased its efforts to boost the demand for houses by reducing the applicable rates of GST. Another effort to boost the demand is by providing tax benefits for the interest payments paid by the buyers. This will provide an additional incentive for the buyers to purchase the under construction properties. Such incentives coupled with the reduced rate of GST ensure that the builders can sell their stock at the earliest.

The revised rates of GST do not have any impact on the registration charges or stamp duty charges. Registration charges applicable on the eligible properties are usually 1% of the value of such properties. This is charged by some states depending upon their laws as a way of standard fee charged in case of sale of eligible property. The stamp duty levied on eligible properties is between the range of 5% to 10%.

Points to Remember about GST on Real Estate

There are many points to be remembered in case of levy of GST on real estate. The details of the same are mentioned below.

  • The GST tax structure states that the GST on a commercial unit is 12%.
  • The cost of under-construction houses is cheaper than ready to move in projects even after the incidence of GST.
  • Under GST laws, the landowners are liable to pay GST only if the tenant is a commercial firm.
  • Any residential property that has maximum 15% commercial space will be treated as residential property as per the GST laws.
  • GST is also levied on the services like legal fee, processing fee, etc. that are in relation to the home loans.

FAQs – GST on Real Estate

1. What is the applicable rate of GST in case of affordable housing?

The rate of GST in case of affordable housing is 1%.

2. What are the registration charges and stamp duty charges levied in case of properties?

The rate of registration charges levied at the time of registration of a property is 1% of the property value. The stamp duty charges levied on the poverties ranges from 5% to 10%.

3. Is input tax credit available in the revised tax structure?

No. The revised tax structure does not provide the benefit of input tax credit to the property owners.

4. What are the benefits that can be availed as per the revised GST rates or the rate cut in GST in real estate sector?

The benefits available on account of reduction in rates of GST are mentioned below.

  • Better compliances from builders
  • Revised and simplified tax structure
  • Availability of fair prices for buyers of the eligible properties on account of GST rate reduction.
  • Protection of the interest of the buyers.

5. What is the rate of GST on commercial properties?

The rate of GST on commercial properties is 12%.

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