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Before the GST there were various taxes like, value-introduced tax (VAT), carrier tax, stamp duty, excise duty, and registration fees imposed by the national governments. Numerous tax conflicts and irregularities were found. By combining a maximum of these taxes into one tax, the GST sought to address those issues and increase accountability and transparency in the area. The GST has both positive and negative impacts in the real estate sector. This article will discuss that further to help you get better clarification.
What is GST on Real Estate?
Goods and Service Tax in Real Estate is levied on properties in Chennai or any other cities that are under-construction. This tax is not applicable for properties that are ready-to-occupy and has a valid completion certificate.
With the previous tax system it was difficult for homebuyers as they had to pay various taxes like service tax, value-added tax, stamp duty, registration charges and more for a under-construction property. On the other hand, for purchasing properties post-construction paying stamp duty and registration charges was enough.
Current GST Charges on Real Estate
The current GST charges on real estate is as follows,
- Affordable housing- 1% without ITC
- Other residential properties- 5% without ITC
- Commercial properties- 12% with ITC
- Completed projects with occupancy certificate- No GST applicable
- Works contract for government projects- 12% with ITC
- Work contract for non-government projects- 18% with ITC
- Real estate projects under RERA- GST rate applicable based on total property consideration
- Joint development agreements or transfert of development rights- 18%
How Does GST Impact Real Estate?
The elimination of the previous tax system, which imposed several levies on investments in under-construction homes, has made it more difficult for the average person to invest in these properties since the introduction of the GST in 2017. Buyers may better understand the types of taxes they will be required to pay when they acquire a property thanks to a unified tax framework and the GST rate on real estate.
With the government rationalizing the GST rate on cheap real estate, investment in inexpensive real estate has also seen significant growth.
Additionally, from the perspective of developers, the GST system has been quite helpful. Developers were required to pay a wide range of taxes under the previous administration, including VAT, Central Excise, Entry Tax, LBT, Octroi, Service Tax, and others, not all of which could be freely deducted from the output tax obligation. A PwC India analysis states that the GST system eliminates the inefficiencies brought about by the cascading impact of taxes by granting ITC eligibility for construction and other services purchased.
Pros and Cons of GST in Real Estate
Advantages of GST in Real Estate
The GST in Real Estate has its own share of advantages. Some of those significant advantages are,
- Many real estate developers and builders have welcomed the new GST systems as it offers better transparency. This will enhance responsibility and promote ease of communication. Consumer confidence has increased as a consequence, which is positive for the market.
- Rental properties are not accoustmed to GST charges. However, if each member’s monthly maintenance expenses exceeded INR 7,500, then GST charges are applicable.
- One positive impact of GST is that buyers are increasingly choosing pre-existing properties as the cost of new and existing constructions soars with the inflation. Due to this ongoing bias, the percentage of people who favor the latter over the former has undergone a significant shift.
Disadvantages of GST in Real Estate
Even though GST in Real Estate sector has various advantages, it also has some of the disadvantages to it. Some of them are listed,
- With the new GST alterations the demand for residential housing in the real estate market has seen a significant drop up to 12%. This drop in the demand can be directly attributed to the increased cost of housing up to 8%. However, it is essential to note that these changes are temporary and won’t last forever.
- One of the main disadvantages of the Goods and Services Tax (GST) is that it imposes higher tax burdens on small and medium-sized enterprises. This is because under the previous tax structure, companies with annual sales over INR 1.5 crores were liable to excise duty.
- Everything pertaining to taxes, from initial registration to filing tax returns, has been done online since the new tax system was introduced. The government’s online system has a learning curve that might be difficult for smaller enterprises, despite the fact that it is quite useful for entrepreneurs.
- Businesses must switch to ERP or GST-compliant accounting software in order to comply with the Goods and Services Tax (GST). However, companies should be mindful that purchasing, installing, and training staff to utilize GST-compliant software can be costly.
Frequently Asked Questions
1. Does resale flats have GST?
GST does not apply to the selling of resale apartments in India. This is due to the fact that a resale apartment is regarded as an immovable property, and after the completion certificate is granted, GST is not applied to immovable assets.
2. Who is supposed to pay the GST while purchasing a property?
The property buyer is responsible for paying the Goods and Services Tax (GST), and the builder is in charge of sending the GST to the Indian government.
3. Is is mandatory to pay GST charges when you haven’t received the completion and occupancy certificate?
Yes, you must pay the GST charges if you have’t received the completion & occupancy certificate. Even if the construction work is completed you must pay the GST charges if you don’t have the completion or the occupancy certificate.