The new GST rates for residential real estate have been in force since April 2019. The updated rates were decided at the 33rd GST council meeting which was held back in February of the same year. If you are either planning to buy or build your property, it would help to know the new GST rates that come with it.

• Residential properties that don’t come under the affordable housing segment will be charged at 5% GST without Input Tax Credit.
• If your residential property comes under the affordable housing segment, the GST to be paid drops to just 1% without Input Tax Credit.

 

One thing to note here is that GST does not apply to completed properties(if a completion certificate is received) or to the resale of existing properties. Currently, builders will get an Input Tax Credit on the materials bought from contractors or suppliers. This was expected to be passed on to home buyers as well but hasn’t happened so far. So future changes in the GST mandates are expected in this respect. You may also be interested in learning on Internal Auditing and Management Consultancy in Kerala

According to joint research done by JLL and CREDAI(Confederation of Real Estate Developers’ Associations of India), an estimated Rs.59,000 crore has been invested by Indians in the housing sector alone since 2014. This accounts for around 47% of the total investments in the real estate sector with projections that indicate an imminent increase in coming years. It is quite evident that real estate is the most preferred investment for Indians, especially in the residential property segment.

Before implementing GST, real estate dealings encountered a long list of taxes, including stamp duty charges, VAT, registration charges, service taxes, and more. This often varied in their tax structure from state to state, making it trickier to determine the exact expenses in taxes. With GST, tax calculations have been grossly simplified, and now it’s fairly well known that the rates can be within 5-18% based on a few conditions. The reasons of which shall be discussed in the following sections.

Change in GST before and after April 2019

Both residential properties and commercial properties will have new GST rates post April 2019.

• The existing GST rates were 8% with Input Tax Credit(ITC) for residential properties under the affordable housing segment. The updated GST stands at 1% without ITC.
• Residential properties that don’t come under the affordable housing segment had 12% GST with ITC. The new GST rate for this segment is 5% without ITC.
• GST rates for commercial properties remain unchanged. This, as discussed previously is expected to change in the future.

 

Definition of Affordable Housing Segment by GST Council

Residential properties can only be listed under the Affordable Housing Segment if it satisfies the criteria mentioned clearly in the 33rd GST council meeting press release.

1. Residential properties in metropolitan areas should not have a total carpet area exceeding 60 square meters.
2. In towns and non-metropolitan areas, residential properties should not have more than 90 square meters of total carpet area.
3. Wherever the location, the residential property should not have a total value of more than Rs.45 Lakhs.

Under this definition, metropolitan areas comprise the entire Mumbai metropolitan region, Chennai, Hyderabad, Bangalore, Kolkata, and Delhi NCR( Delhi, Noida, Faridabad, Gurgaon, Ghaziabad, and Greater Noida).

Benefits of GST rate cuts for Residential property owners

The new GST structure is expected to be of great help for property builders as they are relieved from the long list of taxes that they had to comply with before. Here are some of the major advantages that builders get from the new GST rate cuts:

• GST rate cuts make it easy for builders to comply due to its simpler tax structure.
• GST rate reduction to 1% for residential properties under the affordable housing segment helps buyers get fair prices for the property.
• ITC benefits get passed on to property buyers, which was not the case before.
• The problem of unused ITC getting added to project cost is eliminated, enabling better pricing for residential properties.

 

GST on Construction Materials

Real estate GST rates depend on two key aspects of construction – the goods aspect and the services aspect. The applicable GST on construction materials comes under the goods aspect, whereas the service of construction comes under the service aspect of GST applicability.

The final cost of the building includes both the aspects discussed above and other rates applicable at different stages of construction. Here’s how to calculate the total GST applicable for your building:

Total GST = SGST(State GST) + CGST(Central GST)

This means, for 18% GST, SGST would be 9% and CGST will be 9%. Here’s an overview of GST on key construction materials

• 5% for building bricks, crude granite/marble rubble, fly ash blocks, roofing tiles, and natural sand for construction.
• 12% for marble/granite blocks
• 18% for refractory bricks/tiles, glass for construction purposes, prefabricated structural components for building, and marble/granite other than blocks.
• 28% for Portland/slag cement.

 

The rates presented are indicative and are subject to change.

GST on Construction Services

Similar to the GST on goods for construction, there are clearly defined GST rates for construction services as well. Here are some of the new GST rates applicable for construction services in the real estate sector.

• 8% for properties under construction under the credit-linked subsidiary scheme.
• 12% for properties under construction (excluding those under credit linked subsidiary scheme), composite supply of works contract for affordable housing, and composite supply of works contract for government agencies, and local government bodies.
• 18% for the composite supply of works contracts other than the ones that come under the affordable housing segment, government agencies or other local government bodies, and work contracts other than for government bodies.

 

The rates mentioned are all indicative and are subject to periodic change.

Other than the areas mentioned earlier, there are some transactions and activities related to construction that are GST exempt. Selling ready to move in flats, resale of a property, and sale or purchase of land are all GST exempt.

The sale/purchase in the above cases does not include any services or supply of goods that come under the GST Act and hence is fully GST exempt.

Stamp Duty and Registration in Real Estate

Both registration and stamp duty are a staple in real estate dealings and this remains the case even after the new GST updates. The charges for registration and stamp duty change with the state and could even change within a state even. The charges still stay valid for properties under construction and for already constructed properties. GST shall only be applicable for the sale of properties under construction.

Tax Credits for Real Estate Developers

The provisions under the new GST regime allow real estate developers to claim Input Tax Credits on various inputs(labor, cement, bricks, etc.) needed for their building process. This was introduced to prevent a ‘tax on tax’ situation that existed before. Under the new model, the GST charged in a stage will get offset by the ITC received on the GST charges in the previous stage.

It was expected that real estate developers would pass the ITC benefits received by them to homeowners. But there arose a couple of challenges associated with ITC claims made by developers:

• To give out estimates of total GST payable, it is necessary to enter each input cost in terms of materials, labor, etc., and be separately and thoroughly analyzed.
• One major challenge in providing accurate estimates of upfront costs and filing input tax credits based on them depends heavily on the cost of commodities. The cost of commodities is subject to change often and over the lifecycle of construction, the costs could vary significantly.
• Although the benefits of input tax credits apply only to the GST paid, there is no mechanism currently operational to offset the rise in other costs(non-GST).

 

Conditions to claim Real Estate Input Tax Credit

The provisions under GST in real estate allow developers to claim input tax credits equal to the total tax paid by them in the following cases:

• A debt note or purchase/tax invoice can be produced by the claimant as proof of GST being deducted.
• The claimant should have already received either the goods, services, or both.
• The claimant shouldn’t have used the goods/services or both for personal use, to claim ITC.
• The supplier has duly paid all the taxes to the government.
• The ITC claimant has filed a valid GST return.

 

Claiming ITC is easy with Parpella

We understand it’s pretty hard to keep up with the changing tax rates. With the implementation of GST, it has become rather simple to file taxes, but since much of the transactions during construction still fall outside the domain of GST, you may still require expert help to sort things out. Parpella can help you keep up-to-date with all your finances, especially the GST registration, other taxes, and accounting needs. Contact your Business and Company Registration Consultant in Kerala today.

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