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How has the GST affected Real Estate?

If you’ve been watching the news, you’ve probably noticed the continual talk of how the Goods and Services Tax (GST) has affected the real estate sector. This topic is discussed ad nauseam because the real estate sector accounts for 6-8% of the economy. You might be new to GST. If that’s the case, know that GST is a unified, comprehensive tax that the customer has to pay the central government on taxable goods and services. With the GST in place, real estate is now taxed at 5%, unlike before the GST implementation when it was taxed at 12%. Let us take a look at GST’s impact on the various facets of real estate.

The Impact of GST on Buyers

Property buyers used to deal with the hardship of filing a slew of taxes, including the Value Added Tax (VAT), Services Tax, Registration charges, and so forth under the previous tax system. However, VAT would differ with every state, and developers had to shell out a lot of money to file taxes like sales, customs duty, and a lot more. However, the GST act ensures that a single GST rate of 12% is applied effective April 1st, 2019. As far as the future is concerned, GST will most likely help buyers if the benefit of the Input Tax Credit (ITC) goes to the buyers.

The Impact of GST on Residential Property

GST has a major impact on residential property. Here are the specifics:

  • The Goods and Services Tax is a simple and straightforward tax structure. Its simplicity boosts the chances of compliance from builders and developers.

  • GST solved the issue of passing ITC benefits from the developer to the buyer, which is how it has managed to minimize the chances of property purchase delay.

  • GST has managed to ensure a reasonable price for the buyer, courtesy of reducing the GST tax rate to 1% on residential properties

  • Additionally, there is reasonable pricing of residential properties by eradicating unused Input Tax Credit from the project costs.

The Impact of GST on Developers and Builders

Developers would always face the challenge of filing the taxes mentioned earlier on essential services. ITC was not an option under the old tax structure, which means that these taxes were included in the overall pricing. However, with the enforcement of GST, you can notice a substantial reduction in the developer’s construction costs. This is because the GST Act has subsumed the collection of the indirect taxes mentioned above. There has also been a reduction in logistics costs.

On the other side of the coin, developers had no option but to do complex calculations to come out with the final ITC value to send the buyers. The ITC can only be passed towards in the final stages. Many buyers tend to defer their purchases because of the lack of transparency around ITC.

The Impact of GST on Construction Services

Several construction services need to make GST payments online on real estate. There are different GST rates on different construction-related services. Here are the details:

  • You have to pay 8% on properties under construction as per the Credit Linked Subsidy Scheme
  • You have to pay 12% on properties under construction, except for those that fall under the scheme mentioned above
  • You have to pay 12% on the composite supply of works contract to build affordable housing
  • You have to pay 12% on the composite supply of work contracts to government agencies or local government bodies
  • You have to pay 18% on composite supply of works contract aside from the local government bodies, agencies, and affordable housing
  • You have to pay 18% on the works contract apart from government bodies

Under which conditions is GST not applicable to Real Estate?

The Goods and Services Tax on real estate does not apply to certain activities of transactions that are related to construction. Here are those situations:

  • If you need to sell a flat that is ready to move in
  • Reselling a property
  • Purchasing or selling land

Remember that the supply of goods and services does not come under this category. In other words, the GST on real estate is not applicable here.

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