11 Dec 2018Posted By: Mudit Handa


How has Government Simplified GST on Real Estate?

It can’t be denied that the Goods and Service Tax regime has made the business and accounting all the more prompt and hassle-free. Nonetheless, the real estate is one amongst those sectors in the Indian economy where the new indirect tax regime is not as simplified as in other spheres.     

Presently, the investors, as well as sellers of the properties, are encountering perplexities and burden of taxation due to complicated GST structure in the real estate sector.

The challenges faced by the builders having GST registration with regard to GST on real estate have been discussed already.

In this context, CBIC has clarified several issues regarding the applicability of GST in real estate. The certain revision has been made with respect to the Output GST Rates, Input Tax Credit (ITC) and Effective Tax Rate on Building Construction. The GST department has made a comparative analysis between the GST rates applicable during the pre-GST period and in GST regime.

 

#1. What arrangements have been made with regard to GST on real estate?

The government has revised the Effective rates of GST on real estate projects and the input credit available to the builders for the settlement of GST liability are summarized in the table for pre-GST and GST regime.

Particulars

Periods

Post-GST

Pre-GST

Output Tax Rate

Affordable housing sector: 8%,

Other sectors:

12% of the agreement value of the land (after 1/3rd abatement).

Service Tax: 4.5%

VAT: 1-5% (in case of composition scheme)

Input Credit

Chief building materials, capital goods and input services for construction attract GST @18% or more.

ITC available: Approx. 8-10%.

Central Excise Duty on building materials: 12.5%

VAT: 12.5-14.5% + Entry Tax

ITC: No input tax credit (ITC) on VAT.

Note:-

Excise duty paid on inputs was available to the builder for payment of output tax, hence got added in the value of the property.

Effective GST rate

(revised)

Effective GST incidence, for affordable housing and other segments, hasn’t risen as compared to pre- GST regime.

Effective tax incidence: 15-18%.

 

#2. How is GST applicable on ready to move-in flats?

The government has clearly stated that GST shall not apply to the sale of finished projects such as ready to move-in flats.

  • In this case, the completion certificate has been already forwarded by the competent authority.
  • GST@12% of agreement value is applicable only on the sale of the under-construction property. Here, the ready to move-in flats but where completion certificate is yet to be issued at the point of time of sale.

 

#3. How is GST applicable on Affordable housing?

Affordable Housing projects include those that are included affordable segment such as those under government schemes e.g. Pradhan Mantri Awas Yojana, Nehru National Urban Renewal Mission, Rajiv Awas Yojana, and so on. Such Housing projects shall attract GST@8%.

  • In case of such projects, the builder or realtor would have enough input tax credit after balancing the same in his books of account, so as to settle the GST liability.
  • Now, in most cases, the builder or developer need not pay GST in cash. This will surely relieve them, given that they often face the problem of the cash crunch.

 

#4. How will GST apply on commercial housing?

In the case of projects other than affordable segment (i.e. commercial housing), the government has expected that the cost of the projects would not have increased post-GST roll out.

  • Hence, the if Builders upon GST Registration have hitherto transferred tax burden in the cost of the project, they are now supposed to transfer the benefits of the low tax burden onto the buyers by way of subsidized prices and EMI, where effective tax rate has lowered.
  • It is hoped that these new provisions are sure to provide relief to the buyers of property and make the real estate sector all the more user-friendly.

Additionally, it is also advised that the buyers must deal with the builders having a RERA Registration for transparency in real estate deals.

 

If you need any help regarding GST registration, feel free to contact our business advisor at 8881-069-069.

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