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GST On Real Estate

GST has become a huge stress factor for dealers and taxpayers from 1st July 2017 because of its compliance requirements. However, as per industry experts, it affects the real estate sector in different ways. This article is presented to point out several points of impacts of GST on real estate so that you can understand the matter in a better way. Continue reading to know more.

What is GST on Real Estate?

The GST is implemented on goods and services. It is a value-added tax. The GST tax is 5% imposed on goods and services but several products are exempt from GST. But when it is about GST on real estate, the tax rate is 12% that is imposed on properties under construction. However, it is to be noted that GST is not implemented on ready-to-sale properties. The GST is also imposed on the services offered in making the real estate transaction, including lawyer’s and inspection’s fees. As the real estate commission, 5% GST is applied.

When you buy a newly constructed house, the tax is applied on the whole purchase price of the house, including land. Depending on the sale price, you might be eligible for a partial GST rebate if your house is the primary residence place. On the other hand, a full 5% GST is charged on the price of purchase if the house is rented to other residents. Moreover, the properties that are provided for nightly rental revenue purposes do not come under the GST exemption. Therefore, the sellers of these properties are responsible for remitting GST on their sale and collecting tax at the same time. One can take the advice of professional tax accountants if you need any help related to GST liability.

Who all will be affected due to GST on the real estate business?

The real estate industry has a contribution of about 7.8% to the GDP of India and also, it is the second biggest generator of employment right after the IT sector. The GST is all about bringing transparency in the operations of the real estate sector. However, the GST affects certain people in the business of real estate which are as follows:

  •  Impact on Builders/Developers/Contractors

The GST affects the builders, contractors, and developers harshly as they have to bear Service tax on different services including architect professional fees, approval charges, legal charges, labour charges, etc, and VAT, Excise duty, Entry taxes, Custom duty, etc. on raw materials.

  • Impact on Buyers

It equally affects the buyers in the real estate industry as they have to bear Registration charges, VAT, Stamp duty, Service tax on the purchase of under-construction properties. However, the taxes need to be paid according to the prices of properties in a particular state as it varies from state to state.

  • Impact on Other Stakeholders

Sometimes, the GST drops a great impact on other stakeholders for the allied services such as material suppliers, labour, service suppliers, and so on depending on the rise or fall in the tax imposed on the goods and services. The rate of GST differs for the products used for the construction industry. The GST rate is 5% for sand, 12% for the sand & fly ash bricks, 18% for steel, cement, and paints, and 28% for marble and granite.

How will GST impact the real estate sector?

The GST impact on the real estate sector even brings positive opportunities to the individuals working in the real estate sector. Real estate developers can claim the Input Tax Credit (ITC) on construction raw materials such as cement, labour, bricks, and more under the GST regime. The ITC offers the option to avoid the tax on tax positions. On the other hand, the ITS allows the tax charged on GST to get credited back to the real estate developers. However, certain issues have to be faced by the developers while claiming the Input Tax Credit:

  • To submit GST estimates, the receipt of every input needs to be analyzed properly.
  • As the input prices alter over time, it becomes hard to deliver accurate estimates.
  • No facilities to set off the price rise to claim Input Tax Credit.

If we talk about the negative impacts of GST on the real estate sector, the sales of residential property are not just affected by tax rates but the sentiment is also the reason somewhere. The real estate investors, developers, and buyers are concerned about the increase of the final ticket size of homes even with the GST of 12% in comparison to the existing service tax rates.

Steps to calculate GST on real estate

The GST is a detailed taxation system established on July 1, 2017. It has dropped a huge positive impact on potential real estate buyers as it decreased the cascading effect and subsumed a host of indirect taxes thereby providing transparency to the process of taxation. As the real estate sector is developing tremendously, it is crucial to know how to estimate GST on flats if you are thinking of buying affordable houses or flats. Assume that you are buying an under-construction property worth Rs. 100 from a builder. The calculation of GST on such property would be Rs. 33 as the value of land and the GST rate would be applied on the remaining amount Rs. 77. Let’s see how?

  • The government has rendered relief for the buyers of under-construction properties. Even though 18% tax is imposed on under-construction properties, you just need to pay only two-thirds (12% tax).
  • The land is being transferred in the value of a 6% deduction (one-third) of the total tax. However, the tax is not imposed while transferring the land. Therefore, the final tax paid is 12% by the buyer.
  • For property without ITC, the tax rate was between 5% to 12% after the 33rd Amendment created by the GST regime.

An easy alternative is to use GST Calculator and enter the amount you want to calculate GST for and choose the GST rate. Finally choose between IGSTSGST, or CGST and you’re done. You get the GST details ready to share.

FAQs related to GST on Real Estate Sector

How the taxes are levied on housing properties under the GST?

Initially, 12% of GST was imposed with an ITC on ready-to-move-in flats or under-construction properties. As per new rules, the GST rate has been brought to 5% for properties that are under construction without the benefit of ITC. When it comes to affordable housing units, the tax rate has now been decreased from 8% to 1%.

What are the GST rates levied on the construction of residential apartments?

In a real estate business, the GST rates that apply to the construction of residential apartments are as follows:
- 1% without ITC for construction of affordable residential apartments
- 5% without ITC for construction of residential apartments besides AFS

Will the home loan EMIs increase due to the GST?

As the GST rate is 18% on financial services, home loan EMIs are likely to shoot up under the GST regime.

What would be the GST impact on rental properties?

When it is about the impact of GST on real estate, property rents are likely to spike for developers involved in the property constructions and property renting as the GST credit might not be available in their hands.

Would resell properties be expensive under the GST regime?

As the resale property is immovable, it has not been listed under the definition of ‘goods’ as per the GST regime. Therefore, there would be no GST impact on resale properties.