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03 May 2019Posted By: Mudit Handa


How does GST apply on Works Contract in Real Estate?

With the aim to give a boost to the housing sector, the GST council had reduced the GST rates for real estate sector from 12% to 5%. The GST rates in the affordable housing segment were slashed from 8% to 1%. The new GST rates were approved by the 34th GST Council meeting and were made effective from 1st April 2019.

In this regard, there are some noteworthy changes have been made by the GST authority in relation to the application of GST on works contract.

In order to understand this concept, it is important to know the concept of works contract under GST.

 

1. What is meant by works contract under GST?

Works contract is described u/s 2 (119) of CGST Act 2017. Under GST, Works contract refers to-

"A contract for the building construction, fabrication, installation, completion, improvement, erection, modification, repairs, maintenance, renovation, fitting out, alteration or commissioning of an immovable property in which the transfer of the property in goods is involved in the implementation of that contract."

 

2. How was GST applicable to the works contract earlier?

Very importantly, under the works contract service, goods & services are supplied under the single contract.

Previously, a single GST @ 18% was applicable to the services in a works contract (other than those provided specifically).

 

3. How is GST applicable to the works contract services?

As of now, the GST rates have been amended. The new GST rate has been discussed below-

  • If works contract service is given by a contractor having GST registration in respect of the construction of an affordable house, then GST rate shall apply @ 12%.
  • In case of any other type of Works contract services, GST @ 18% would apply.

 

4. How shall GST apply in case of ‘Work in progress’?

The government had recently reduced the applicable GST rate for the under-construction homes from 12% to 5% after the 34th GST council meeting.

Further, with an aim to boost the affordable segment, the GST rate on affordable houses has been reduced from 8% to 1%.

 

5. How shall GST apply on rental income?

The rental income from residential property shall not be taxed under the GST.

  • However, in case any premises have been leased out on rent for commercial or industrial use, the rental income above 20 lakh annually shall be taxed @ 18%.
  • The buyer, as well as the real estate developers, must consider the above parameters for applicability of GST on real estate.

In case you need any sort of guidance with regard to GST registration, please feel free to contact our business advisor at 8881-069-069.

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