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GST on real estate : an Important press release for home/flat buyers

New Delhi: 8 December 2018 Ministry of Finance issued a press release to clarify the tax rate impact on Pre-GST and Post-GST property. 

The press release focusing on two issues:-

  1. comparing the tax rates between pre and post GST
  2. Applicability of tax in contrast where sale of constructed building take place with or without obtaining Completion Certificate

Below are details summarized by us and also the copy of press release  

 

Type of transactions                                      Effective RATE OF TAX

in GST
Effective tax  rate   
pre-GST i.e old regime 
OUR REMARKS                                                
Under Construction Building
                 Affordable Government Schemes                                                         
                 Other Than Affordable schemes               


8%



12%
15-18%Previously no
input credit i.e
ITC was 
available 

Apart from 1/3rd
rebate on
GST rate, builder must pass ITC
benefit
ON READY-TO-MOVE FLATS       Completion Certificate issued      NILNILGST NOT
applicable 

ON READY-TO-MOVE FLATS        
Completion Certificate
not-issued                                                 
8% and 12%15-18%Same as under
construction
property

Effective tax rate on complex, building, flat etc.

New Delhi: 8 December 2018, PIB news
 

It is brought to the notice of buyers of constructed property that there is no GST on sale of complex/ building and ready to move-in flats where sale takes place after issue of completion certificate by the competent authority. GST is applicable on sale of under construction property or ready to move-in flats where completion certificate has not been issued at the time of sale.

   Effective rate of tax and credit available to the builders for payment of tax are summarized in the table for pre-GST and GST regime.

Period

Output Tax Rate

Input Tax Credit details

Effective Rate of Tax

Pre- GST

Service Tax: 4.5%

VAT: 1% to 5%

(composition scheme)

Central Excise on most of the construction materials: 12.5%

VAT: 12.5 to 14.5%

Entry Tax: Yes

No input tax credit (ITC) of VAT and Central Excise duty paid on inputs was available to the builder for payment of output tax, hence it got embedded in the value of properties. Considering that goods constitute approximately 45% of the value, embedded ITC was approximately 10- 12%.

Effective pre-GST tax incidence: 15- 18%

GST

Affordable housing segment: 8%,

 

Other segment: 12% after 1/3rd abatement of value of land

Major construction materials, capital goods and input services used for construction of flats, houses, etc. attract GST of 18% or more.

ITC available and weighted average of ITC incidence is approximately 8 to10%.

Effective GST incidence,

for affordable segment and for other segment has not increased as compared to pre- GST regime.

 

Housing projects in the affordable segment such as Jawaharlal Nehru National Urban Renewal Mission, Rajiv Awas Yojana, Pradhan Mantri Awas Yojana or any other housing scheme of State Government etc., attract GST of 8%. For such projects, after offsetting input tax credit, the builder or developer in most cases will not be required to pay GST in cash as the builder would have enough ITC in his books of account to pay the output GST.

  For projects other than affordable segment, it is expected that the cost of the complex/ buildings/ flats would not have gone up due to implementation of GST. Builders are also required to pass on the benefits of lower tax burden to the buyers of property by way of reduced prices/ installments, where effective tax rate has been down.