GST on Real Estate
New GST rates have been introduced in the 33rd GST council meeting held on 24th February which came into effect from April 01, 2019. The new GST rates on residential real estate transactions have been proposed as follows:
- GST to be charged at 5% without Input Tax Credit (ITC) on residential properties that are not part of the affordable housing segment.
- GST to be charged at 1% without ITC on residential properties that are included in the affordable housing segment.
- GST on real estate for under-construction properties is 12%. GST does not apply to the sale of completed properties. Here the completion certificate has been issued. Builders get Input Tax Credit on the material purchased from the suppliers or contractors under the current GST structure.
A Joint report from JLL and CREDAI states that since 2014, investments made in the housing sector in India accounted for almost 47% of the total investments in the sector with projections indicating a further increase in the coming years.
In the pre-GST era of taxation, there are multiple taxes were charged to real estate which includes VAT, stamp duty charges and service tax. Each of the tax featured with different rates and varied from one state to another.
Implementation of GST on real estate has played a significant role in simplifying the taxation of Real Estate in India and can range from 5% to 18% depending upon some key factors. In the following sections, key aspects of GST on real estate are discussed.
GST Council Definition of Affordable Housing Segment
The GST council has announced the eligibility criteria of residential property in the affordable housing segment which is mentioned in the press release of the 33rd GST council meeting press release.
The following are the key affordable housing segment qualifying criteria for a residential property in India:
- The total carpet area of residential property cannot be above 60 square meters in metropolitan areas.
- The total carpet area of residential property cannot exceed 90 square meters in non-metropolitan cities and towns.
- The total value of property cannot exceed Rs 45 Lakh in either metropolitan or non-metropolitan areas.
- Expected benefits of GST rate cut on residential properties
- Reduction in GST rates on real estate proposed by the GST council will be implemented from April 01, 2019 are expected to offer the following benefits:
- It brings greater compliance from builders.
- The buyer will get a fair price of a property due to the GST rate reduction to 1% on residential properties in the affordable housing segment.
- The problem of Input Tax Credit benefits is not getting passed to property buyers is eliminated. Hence, the interest of buyers gets protected.
- Better pricing of residential properties as the problem of unused ITC being added to project cost is eliminated.
- GST Rates for Construction Materials
There are two key aspects of GST applicability in real estate:
- ‘Goods ‘Aspect: It states about the GST applicable to various construction material.
- ‘Services Aspect’: Service of the construction itself.
Both the goods and services aspect contribute to the final cost of the property for the end-user(owner).
Different rates are applicable at different stages.
The total GST applicable is calculated by adding the SGST (State GST) and CGST (Central GST), thus 18% GST = 9% SGST + 9% CGST. 12% GST = 6% SGST + 6% CGST and so on. The following is a snapshot of how GST rates on real estate construction materials is applicable:
| GST on key construction material | Key rates |
Building bricks
| 5% |
Crude Granite/ Marble Rubble
| 5% |
Fly Ash Blocks
| 5% |
Roofing Tiles
| 5% |
Natural Sand (For Construction)
| 5% |
Marble / Granite Blocks
| 12% |
Refractory bricks/tiles
| 18% |
Glass for construction purposes
| 18%
|
Prefabricated structural components for building
| 18%
|
Marble/Granite (other than blocks)
| 18% |
Portland/slag cement
| 28% |
Rates are correct as of 27th December 2018 subject to periodic change. You can use our handy GST Rates finder tool to check the latest GST rates for a variety of materials required in construction.
Registration and Stamp Duty in Real Estate
If we talk about registration and stamp duty on real estate, they have continued to remain in place in the form of State Government taxes after the GST. These charges vary from one state to another and from one circle to another within the same state itself. In the GST era, stamp duty and registration charges will continue to be applicable in case of both already constructed and under construction properties across India, while GST will apply only to under-construction properties being sold.
Input Tax Credit for Real Estate Developers
After the introduction of the GST regime, an Input Tax credit can be claimed by real estate developer in terms of various inputs such as cement, bricks, labor, sand, etc.) All these inputs are required as a part of the building construction process. The key reason for the introduction of Income Tax Credit is that it helps in avoiding the situation of “Tax on tax”. GST applicable at every stage and it will be offset received on the GST charged in the preceding stage.
At the time of the introduction of Income Tax Credit and GST in real estate, it was expected that all the benefits of Income Tax Credit would be passed on by the developers to the new homeowners.
Key problem areas with respect to Income Tax Credit claims made by the real estate developers include:
- All input cost in terms of construction material and labor etc. needs to be analyzed thoroughly and separately to calculate the estimates of total GST payable.
- The cost of commodities is liable to change as the life cycle goes of the construction project making it challenging to provide correct estimates of upfront costs and file for an input tax credit on that basis.
- No Mechanism is currently in place to offset the increase in Non-GST costs while the benefit of input tax credit is only applicable to GST paid.
Conditions for Claiming Input Tax Credit in Real Estate
After the introduction of GST in Real Estate, according to GST Act rules Input tax credit is equal to the total tax paid may be claimed by real estate developers in the following cases:
- The claimant can produce a purchase invoice, tax invoice or a debit note as proof of GST being deducted.
- The Goods and Services have already been received by the claimant.
- The Input Tax Credit has not used the goods or services received for personal use.
- All taxes that were due has been paid to the government by the supplier.
- A valid GST return has been filed by the ITC claimant.
Impact of GST on Real Estate
- After the GST implementation, GST witnessing a slump attributed mainly to demonetization and the Real Estate Regulation and Development Act, 2016.
- Housing prices were either stagnant or witnessed a marginal rise across the country while in larger cities such as Delhi NCR prices were reported to have witnessed a 2% decline as of Q3 2018 (as per a report by Laises Foras.
- The resale market was also severely hit with prices reportedly plummeting by 15% to 20% in Delhi NCR as per the Liases Foras report. This, even though, GST does not apply to resale properties.
- One might conclude that the impact of GST cannot be accurately be gauged yet and only with more time can a clearer picture emerge regarding the impact of GST on real estate.
