10 FAQ About GST On Real Estate You Should Know

GST on real estate is a complex term. There are various clauses and laws regarding GST on real estate. Because its vastness creates confusion among buyers and sellers, who ask hundreds of questions to clarify their doubts. Today, we will answer ten frequently asked questions regarding GST on real estate and also the impact of GST on real estate.

1. How To Calculate Gst On Under Construction Property With Examples?

The applicable GST rate is @12 percent on commercial and @5 percent on residential under-construction property. In the case of residential under-construction property, there is no concession in the GST. Still, in the case of commercial under-construction property, it depends on the developer, how much benefit he wants to give you, as he is already getting the benefits of an input tax credit. Affordable homes up to 45 lacs will come under the 1 percent GST slab. 

For example, the total GST on commercial property (under construction) is 12 percent, and gst on residential residential property is 5 percent, as we are only giving GST on the two-thirds value of the project, excluding the land value; if the project costs one cr, excluding the land’s cost, the GST will be applicable here is 12 lacs for commercial and five lacs for residential. Still, if your developer provides you with a concession in the GST, the GST payable can be decreased.

2. What are the new GST rates on the construction of residential apartments?

Starting from April 1, 2019, new tax rates without Input Tax Credit (ITC) apply to housing projects in India. Affordable housing projects initiated after this date are taxed at 1%, while ongoing affordable projects, if opted for the new scheme, are also taxed at 1%. Projects involving more than 15% commercial space or those not falling under the affordable housing category face a 5% tax rate. This rate also applies to new non-affordable projects started after April 1, 2019, and ongoing projects not opting for the lower rates.

Developers cannot claim input tax credits to take advantage of these rates. They must procure at least 80% of their inputs and services from registered suppliers, excluding specific categories like developmental rights, long-term lease of land, floor space index, and specific utilities like electricity, diesel, motor spirit, and natural gas. 

If the 80% threshold from registered suppliers is met, developers must pay 18% GST under the reverse charge mechanism, except for cement, which incurs 28% GST if purchased from unregistered suppliers. These changes simplify tax compliance and promote affordable housing initiatives by ensuring predictable tax liabilities and reducing administrative complexities associated with claiming Input Tax Credits.

3. What is an affordable residential apartment?

An affordable residential apartment is one in which:

       •  Carpet area is up to 60 square metres for metropolitan cities;
       •  Carpet area is up to 90 square metres for cities and towns other than metropolitan cities and;
       •  The gross amount charged by the builder is not more than Rs.45 lakh.

4. What is the GST rate for a single residential house?

There is @1 percent GST on residential property, only applicable on affordable housing projects that cost upto 42 lacs and @5 GST on projects that are not affordable.

5. Is GST applicable on the house when a Completion Certificate (CC)/ Occupational Certificate (OC) is not received? 

It is mandatory to pay GST if the project still needs to receive its completion certificate.

6. Is GST applicable for completed flats? 

You don’t have to pay GST when buying a flat if the flat has its completion certificate or occupational certificate.

7. Who pays GST? Builder or buyer?

The buyer has to pay GST to the builder at the time of purchase.

8. Can a builder collect GST from customers?

Yes, the buyer can collect the GST from customers.

9. How can the Rs 45 lakh limit be calculated while checking eligibility for an affordable housing project?

It would help if you considered all charges, including parking, development, standard facility charges, preferential location, etc., while calculating the Rs 45 limit. However, you can exclude stamp duty, maintenance charges, apartment maintenance deposits, and shared infrastructure maintenance.

10. Does a promoter or a builder have the option to pay tax at old rates of 8% & 12% with ITC?

Promoters or builders can pay tax at old rates as a one-time choice for ongoing projects. This must be communicated to the Jurisdictional Commissioner by May 20, 2019, using the prescribed form. If not communicated, new tax rates apply. Once submitted, options cannot be changed; each ongoing project requires a separate decision.

Impact Of Gst On Real Estate

Gst impacts real estate in various ways. It impacts the overall cost of a project. GST creates transparency to ensure if the project is following all the rules and regulations and involved in a legal transaction. It also helps you to assess all the payments correctly.