27 Nov 2018Posted By: Mudit Handa

How is Impact of GST on the Real Estate Sector going worse?

It is truly undeniable that the Goods and Service Tax regime has made the business and accounting dynamic and user-friendly than ever before. Nevertheless, the real estate is one amongst those spheres of the Indian economy where this user-friendly indirect tax policy has not fully mitigated the crisis as yet. The other 2 composite areas where GST has not been completely successful are petrol & diesel and liquor.         

In the current scenario, the buyers of the properties under construction process are confronting acute disarray and burden of taxation because of complex GST structure in the case of real estate ventures.

Specialists have pointed out that these complexities will further intensify the cash crunch problem among the builders, realtors and real estate developers and this will adversely impact the ease of doing business.


#1. How is GST applied in real estate sector?


Particulars of Services

GST  Rate


Construction of a municipal project or a part thereof, for the purpose of sale, completely or partially.

[The overall cost charged from buyer includes the cost of land.]


Full Input Credit

(but not excess ITC)


Composite Works contract supply u/s 2(119) CGST Act 2017.


Full Input Credit


All other services not specified anywhere else


Full Input Credit


#2. Who incurs GST liability on the entire venture?

The obligation to pay GST on the whole project is to be assumed by the builder or the realtor. From the above table, we see that the realtors having GST registration always get the refund of their input credit. Subsequently, under typical conditions, the realtor imposes the whole burden of GST tax onto the property buyer.


#3. Where is the crisis emerging, then?

  • As explained above, the GST is charged on the ‘under construction project’  only, which mainly includes flats sold all over India. Here, the purchaser is supposed to incur GST liability @12% of the agreement value.
  • Further, no GST is charged after the project finally gets completed.
  • Numerous buyers are presently deciding on buying completed projects such as “ready to move in” flats or settling in the old ones to strategically prevent the unwanted GST liability.
  • This is finally decreasing the cash flow of the realtors who have GST registration, as indicated by the real estate experts.


#4. How the buyer of the property is facing the challenge?

The entire difficulty is due to the break-up of the cost of the whole project. The cost of land is excluded from the purview of GST.


#5. What effects will this have on the market?

  • The severely restricted cash flow is now forcing the developers and property dealers to divert their investment on finished projects.
  • As a matter of fact, the Banks are apprehensive of the accumulation of the non-performing assets in construction, so they are reluctant to provide loans.
  • Apart from commercial banks, the Non-banking finance companies (NBFCs) that were once a last hope for the builders, are also excessively confronting the problem of the liquidity crunch. Hence, they are not in a position to advance loans.

Thus we can see that the government now needs to painstakingly consider these difficulties and enhance the GST structure in real estate sector.


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

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