GST on Real Estate – Know GST on Property

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Real Estate is the second largest employer in India after the IT industry. Indirect taxation is completely redefined with GST on real estate coming into play, after replacing several taxes like VAT and Service Tax. 

Article Content for GST on Real Estate:

Recent Update about GST On Real Estate

The 33rd GST Council meeting was held on February 24, 2019, from earlier February 20, 2019. It was held with real estate in limelight by Finance Minister Arun Jaitley. It was the first meeting after he announced Interim Budget 2019. The GST on the under-construction property was slashed without the benefit of ITC. No changes have been made to GST on cement or lottery. 

GST on Real Estate – Impact for Buyers 

Buyers needed to pay service tax, VAT, stamp duty and registration fees when buying under-construction properties earlier. Since registration charges, VAT and stamp duties were levied by the state, property rates also varied state to state. Developers also needed to pay several duties like custom duty, sales tax (CST), OCTROI and other charges. 

On the other side, only 12% of GST on under-construction flats is charged and GST is not applicable on ready to sell or completed properties. So, buyers can now enjoy the benefits of reduced property prices under GST. Buyers may need to wait and watch to gain more info on the impact of GST on property rates. 

Impact on Builders, Developers, and Contractors 

Developers needed to pay VAT, Excise duty, Entry taxes, and customs duty, etc. on inputs/raw materials and service tax on several input services, such as professional fees for architect, approval charges, and legal charges. For duties like Customs duty, CST, and Entry Tax, ITC was not applicable. It affected the pricing and caused a burden to the buyer. 

The construction costs are heavily reduced for the developers under the GST regime as several taxes are subsumed with input tax credit availability. In addition, logistics cost has been reduced as an added advantage. There might be an improvement in margins for developers. They needed to do several calculations to fall under ITC. 

What about Stamp Duty?

When it comes to calculating GST for a limited purpose, registration charges and stamp duty are subsumed. Stamp duty will be applicable to both under-construction and completed properties like with the previous tax regime. 

Reverse Charge Mechanism (RCM)

RCM is known to be termed from Service Tax law. Its scope has been expanded tremendously in GST which may impact developers.

  • If an unregistered person under GST provides services or supplies good, a party which is GST registered needs to pay GST on all the supplies.
  • When goods transporters render services, firm or individual, local authorities or government offer services, GST should be paid by the developer.
  • The developer is unable to adjust the tax which is due against input tax credit under RCM from the GST on inputs. It should be paid by bank or cash deposit.

Input Tax Credit – What is Eligible and What not?

The credit of taxes on all input and input services under GST are intended to be used or used and their availability would be subject to exceptions.

Claiming ITC

A registered person would be required to claim ITC only by fulfilling these conditions –

  • He has received services and/or goods or both,
  • He has tax invoice/debit note
  • Tax charged on those supplies is paid by the supplier to government
  • He has submitted valid GST Return
  • The services and goods shouldn’t be used for personal purposes

What about the Restriction on Input Tax Credit?

The input tax credit is not available for construction supplies for the immovable property instead of machinery and plant. Keep in mind that ‘construction’ includes renovation, reconstruction, additions, or repairs or alterations to capitalization to the specific property. 

What about other stakeholders? 

The impact on the given services like material suppliers, labor, and service suppliers relies on the hike or decline of tax charged on the given goods and services. It will have an important impact as a whole on the real estate industry. For example, around 31% was charged on cement. Today, it is 18 percent. A rise in the prices of cement will obviously cause the situational rise of the overall construction cost. 

 

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