There’s no doubt that India’s real estate sector has significantly boosted the nation’s economy. The sector contributes up to 8% of India’s overall GDP and is just one step behind the IT industry in terms of job creation.
Earlier, real estate had numerous taxes like VAT, service tax, etc. However, with the advent of GST in the scenario, real estate’s taxation landscape has been revamped and improved. The impact of the GST on real estate has significantly benefited both the developer and the purchaser.
So, read this article to learn how.
GST on Real Estate: What Are the Various Applicable Rates?
Previously, the applicable GST on property purchases ranged from 8% to 12%, depending on the property type. Earlier, these properties were qualified for the input tax credit (ITC) claim.
Nevertheless, the Indian government decided to accelerate the growth of the real estate sector by reducing the GST rate on real estate properties. But there are certain government-imposed conditions to be met for such a reduction, and the ITC cannot be claimed under the latest revised GST rates.
This revised edition of GST rates became effective on April 1, 2019. Here is a table representing the previous and recent rates of GST on residential property and commercial properties.
| Real Estate Property Type | GST Rate (Till 31-03-2019) | Input Tax credit (ITC) | GST Rate (w.e.f 01-04-2019) | Input Tax credit (ITC) |
|---|---|---|---|---|
| GST on Residential Property (affordable residential unit) | 8% | Claimable | 1% | Non-claimable |
| GST on Residential Property (non-affordable or luxury residential unit) | 12% | Claimable | 5% | Non-claimable |
| GST on Commercial Property | 12% | Claimable | 12% | Non-claimable |
| 18% on income from commercial properties | NA | 18% on income from commercial properties | NA | |
| GST on Rental Income | NIL for income from residential properties | NA | NIL for income from residential properties | NA |
Note: GST on an under-construction property(residential) is 1% or 5%, depending on whether it’s an affordable or luxury housing unit. However, there’s no GST rate applicable on purchasing a completed housing unit, provided there’s a Completion Certificate for that respective property.
Impact of GST on Real Estate Contractors / Builders / Developers
Previously, under the conventional tax regime, real estate developers had to pay entry taxes, customs duty, VAT, excise duty, etc., on inputs or raw materials and service tax on multiple input services like legal charges, labor charges, architect and professional engineer fees, approval charges, etc.
Developers didn’t get the ITC benefit for duties like entry tax, customs duty, CST, etc. This significantly impacted the overall pricing, which eventually affected the payload of the purchaser.
However, the introduction of GST made things simpler for the developers as their construction costs were significantly lowered. The impact of GST on real estate has been positive for the developers as the new GST law subsumed the numerous taxes and reduced logistics expenses. This led the developers to witness a significant increase in their profit margins.
Impact of GST on Real Estate Buyers
Previously, under the conventional tax regime, real estate purchasers had to bear the burden of VAT charges, registration charges, service tax, stamp duty, and more.
Moreover, as stamp duty, registration charges, and VAT were charged by the state government, the cost of properties varied from one state to another. Plus, real estate developers had to bear the expense of multiple duties like OCTROI, custom duty, sales tax (CST), etc., for which they had no credit available.
However, under the GST law, fixed tax rates of 1% (affordable housing units), 5% (non-affordable housing units), and 12% (commercial units) are applicable on properties under construction. Plus, there’s no GST rate applicable on the purchase of ready-to-move-in or completed properties.
Thus, the impact of the GST on buyers seems to be beneficial due to the reduction in prices. The GST will have a more positive impact on the purchasers in the long term if the developer passes on the benefit of the ITC to them.
At Piramal Realty, we strive to give our clients nothing but the finest. We walk everyone through the procedure step-by-step with the aid of our knowledgeable team so that they don’t run into any obstacles. Come see us right away to move one step closer to your ideal house!
FAQs
What are the stamp duty and registration charges for purchasing any real estate property?
The stamp duty charges on purchasing a real estate property vary from state to state. However, it always ranges between 5% and 10%. The registration charge at the time of property registration is 1% of the total property cost.
What is the GST rate for affordable housing purchases?
If someone purchases an affordable housing unit, they will have to pay a GST of 1% without ITC and subject to conditions imposed regarding affordable housing by the government.
Who benefits from the input tax credit under the revised rates of GST on real estate?
According to the revised GST rates on real estate, only the developer benefits from the input tax credit, not the property purchaser.
Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim/disown any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein
Table of Contents
