The Goods and Services Tax, or GST, on flats and apartments is one of the several taxes that buyers must pay when purchasing a home. The ramifications of the GST for real estate in general, and home buyers in particular, are examined in this blog. In addition, we'll talk about the GST rate on flat purchases in 2022 and the GST rate on land purchases in 2022.
In India, home buyers must pay a Goods and Services Tax (GST) of 1% for affordable housing and 5% for non-affordable housing when purchasing under-construction properties such as flats, apartments, and bungalows. The GST is also applicable to the purchase of developable plots in real estate.
In 2022, anyone purchasing flats and apartments in under-construction developments in India's megacities would be subject to GST. It's worth noting that the GST on flat purchases does not apply to completed projects. A finished project is one that has acquired a certificate of completion from a competent body.
Prior to the implementation of the GST in 2017, a number of state and federal taxes were levied on structures throughout the development of a housing project. While these taxes increased the cost of project development for developers, there was no credit for builders against the output liability for these taxes. Prior to the implementation of the GST, real estate developers had to pay a variety of taxes, including:
The cost of these taxes borne by builders was then passed on to the property buyer.
Furthermore, the complexities of the rate applicability of the various taxes allowed developers to falsify numbers in order to charge purchasers more. Finding out the VAT, Central Excise, Entry Tax, LBT, Octroi, and Service Tax rates relevant to property building used to be a difficult undertaking for the average buyer.
The GST, which went into effect on July 1, 2017, was hailed as India's biggest tax reform since independence. Multiple indirect taxes were merged into the GST to give taxpayers a more consistent experience. Various adjustments have been made to the bracket in which real estate is classified since its inception.
The categories of central and state taxes that the GST absorbed when it went live in July 2017 are listed below:
Central taxes
1 Excise Duty
2 Customs Duty
3 Special Additional Duty of Customs
4 Service Tax
5 Central Sales Tax
6 Central surcharge and cess on supply of goods and services
State taxes
1 State Value Added Tax
2 Entertainment Tax
3 Luxury Tax
4 State Excise Duty
5 State surcharge and cess on supply of goods and services
6 Taxes on advertisement
7 Purchase tax
8 Taxes on lotteries, gambling and betting
Since its inception, the government has considerably decreased the GST rate on property purchases in order to replicate demand during a prolonged slump. According to analysts, this might potentially reduce the buyers' pay-out by 4% to 6% on the whole purchase.
Housing units worth up to Rs 45 lakhs qualify as affordable housing, according to the government's criteria. However, in order to qualify as affordable housing, the unit must meet certain specifications. A housing unit in a metropolis qualifies as an inexpensive dwelling if it costs less than Rs 45 lakhs and has a floor area of less than 60 square metres (carpet area). Metropolitan cities include the Delhi-National Capital Region, Bengaluru, Chennai, Hyderabad, Mumbai-Mumbai Metropolitan Region, and Kolkata. A housing unit in any Indian city other than the ones listed above qualifies as an affordable house if it costs less than Rs 45 lakhs and has less than 90 square metres of carpet area.
What is the GST input tax credit (ITC)?
The ITC system, which distinguishes the GST from India's prior tax structure, is a distinctive feature of the law. A real estate developer pays tax on the acquisition of goods and services several times during the life of a housing project, from the beginning to the end. When the builder pays his output tax under the GST system, he will receive an input tax credit.
A developer must pay a tax of Rs 25,000 on his final output. During the purchase of supplies such as steel, cement, and paint, the builder has already paid Rs 21,000 in input tax. After calculating the input tax credit, he would only have to pay Rs 4,000 in output tax in this case.
GST on government-sponsored housing programmes
The administration has stated that under the new regime, government-led large housing projects aimed at the general public will only be subject to a 1% GST. The Jawaharlal Nehru National Urban Renewal Mission, the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana, and state government housing projects are among these housing schemes.
Construction services are subject to the GST.
While real estate in India is not directly subject to the GST regime, the sector's many operations and services are taxable under the new system.
It is interesting to note that GST does not apply to ready-to-move-in flats; it only applies to flats that are still under construction.
It's vital to realise that the GST doesn't apply to the real estate industry. 'Work contracts' determine the tax rate that applies to a property building. This is why a developer cannot levy GST on the sale of ready-to-move-in properties. A property is classified as ready-to-move-in following completion and receipt of the occupancy certificate, and it is no longer covered by the work contract. In other words, the GST would be imposed on the sale of under-construction properties that have not yet received their occupancy certificates. It's also worth noting that, under the previous scheme, buyers of ready-to-move properties had to pay service tax as well.
However, because the developer/owner paid GST as part of the acquisition price, he would eventually include this cost in the overall property cost. This essentially means that, while ready-to-move-in residences are exempt from GST, the buyer is still responsible for it.
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