Effect of GST on Realty Market and Home Purchasers
Below is everything home buyers need to know about the Goods and Services Tax (GST) regime and also the effect of GST on them economically
Amongst the many tax obligations that home purchasers have to pay on residential property purchase is the Goods as well as Services Tax Obligation or GST on flats. Lots of modifications have currently been made in this tax program, in a brief span of time considering that it entered force in July 2017. In this write-up, we check out the effects of the GST for real estate in general and also home customers, in particular.
Taxes before GST execution
Before the GST came into pressure, Flats in Kharghar for sale a range of state and also main taxes were troubled structures, with the training course of the construction of a housing project. While these tax obligations enhanced the price of task development for developers, no credit scores against this tax were readily available to the home builders against the result obligation. A few of the tax obligations that real estate designers had to pay before the GST came into force included Value Added Tax (VAT), Central Excise, Entry Tax, LBT, Octroi, Service Tax, etc. The cost incurred on these taxes by builders was then transferred to the property buyer.
Moreover, as buyers had very little clarity over the various taxes and the applicable rates, developers were also in a position to manipulate numbers, to keep the deal to their best advantage. For a common buyer, it would have been an uphill task, to find out the VAT, Central Excise, Entry Tax, LBT, Octroi, and Service Tax rate applicable on property construction.
After GST implementation
With much fanfare, the GST regime was launched in India on July 1, 2017. Touted to be the biggest tax reform in India after Independence, house in kharghar for sale the GST subsumed multiple indirect taxes, to offer a uniform regime to the tax payer. Initially, the GST for real estate was kept higher but the Narendra Modi-led government, which launched the revolutionary tax regime, reduced the rates in 2019. This was done, in a bid to make properties more affordable to the common man and to boost its ambitious ‘Housing for All by 2022’ target.
GST rate on real estate
With the intent to simulate demand amid a prolonged slowdown, the government has reduced the GST rate on property transactions significantly. This could potentially lower the buyers’ pay-out by 4% -6% on the overall purchase, believe experts.
GST rate till March 2019
8% with ITC
12% with ITC
GST rate from April 2019
1% without ITC
5% without ITC
While the new tax rate without input tax credit (ITC) will apply on all new projects, apartment in kharhar for sale builders were given a one-time option to pick between the old and the new rates by May 20, 2019, for their ongoing projects. This offer was valid only for projects which were incomplete as on March 31, 2019. The government’s decision came, after the developer community raised concerns on the tax liability in the absence of ITC.
What is an input tax credit (ITC) under GST?
A unique characteristic of the GST law is its ITC system, flat for buy in kharghar under 50lac which makes it different from the previous tax system in India. From the start of a housing project, till its completion, a real estate developer pays tax multiple times on the purchase of goods and services. Under the GST regime, the builder would get input tax credit when he pays his output tax.
A developer has to pay Rs 25,000 as a tax on his final product. The builder has already paid Rs 21,000 as input tax, while purchasing materials such as steel, cement, paint, etc. In this scenario, he would have to pay only Rs 4,000 as output tax, after adjusting the input tax credit.
What is affordable housing as per GST?
According to the government-determined definition, housing units worth up to Rs 45 lakhs qualify as affordable housing. However, the unit must also conform to certain measurements. A housing unit in a metropolitan city qualifies to be an affordable house in Kharghar Navi Mumbai if it costs up to Rs 45 lakhs and measures up to 60 sq meters (carpet area). The Delhi-National Capital Region, Bengaluru, Chennai, Hyderabad, the Mumbai-Mumbai Metropolitan Region, and Kolkata are categorized as metropolitan cities. A housing unit in any other city barring the ones mentioned above in India qualifies to be an affordable house if it costs up to Rs 45 lakhs and has up to 90 sq meters of carpet area.
GST on maintenance charges for housing societies
Flat owners are liable to pay 18% GST on residential property, if they pay at least Rs 7,500 as maintenance charge to their housing society. Housing societies or residents’ welfare associations (RWAs) that collect Rs 7,500 per month per flat, also have to pay 18% tax on the entire amount. Housing societies that have an annual turnover of less than Rs 20 lakhs are, however, exempted from paying the GST. For the GST to be applicable, both the conditions should apply– i.e., each member should pay more than Rs 7,500 per month as maintenance charge and the annual turnover of the RWA should be higher than Rs 20 lakhs.
The government has also clarified that the entire amount is taxable, in case the charges exceed Rs 7,500 per month per member. For example, for flats in Kharghar if the maintenance charges are Rs 9,000 per month per member, the 18% GST on flats will be payable on the entire amount of Rs 9,000 and not on Rs 1,500 (Rs 9,000-Rs 7,500). Also, owners with multiple flats in the same housing society will be taxed for each unit separately.
On the other hand, RWAs are entitled to claim ITC on tax paid by them on capital goods (generators, water pumps, lawn furniture, etc.), goods (taps, pipes, other sanitary/hardware fittings, etc.) and input services such as repair and maintenance services.
GST on rent
Landlords do not have to pay GST on real estate rental income, as long their premises are let out for residential purposes. However, the GST regime treats renting out of the residential property for business purposes as a supply of services, thus, including rental income under its purview. An 18% GST on residential flats is charged on such rental income under the new regime if the rent amount per year exceeds Rs 20 lakhs. In this case, property in Kharghar landlords also has to register themselves, to pay the GST on their rental income.
Unlike under the Service Tax regime, the threshold limit for the applicability of GST has been increased from Rs 10 lakhs per annum to Rs 20 lakhs. So, many of the landlords who were covered under the Service Tax regime will go out of the indirect tax net, under the GST. On letting-out of commercial properties, a GST at 18% is levied.
GST on a home loan
While there is no applicability of the GST on home loan repayment as far as the borrower is concerned, financial institutions offer several ‘services’ as part of home loans. Based on the fact that these are services, the applicability of GST comes into the picture. Consequently, if you are taking a housing loan, the bank would charge GST on the processing fee, technical valuation fee, and legal fee.
GST on govt housing schemes
The government has clarified that government-led mega housing projects meant for the common man, will attract only 1% GST under the new regime. These housing schemes include the Jawaharlal Nehru National Urban Renewal Mission, flat for sale in Kharghar sector 35 the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana and housing schemes of state governments.
Impact of GST on affordable property
The presence of multiple taxes prior to the GST may not have impacted property prices excessively. Nevertheless, flat for sale in Kharghar sector 21 it made tax computation a tedious process for the home buyer. Consequently, not many buyers would venture to find out the various taxes that added up to the final cost of the property. Although several teething issues remain, the effect of GST on the property is that it offers better clarity to home buyers about their tax liability than the previous regime. With the GST impact on the real estate sector resulting in greater transparency, buyers would have more faith in the taxation of property transactions in India. Moreover, properties could become more affordable, even if the rates are reduced marginally. Here’s a look at how to calculate GST on flats’ purchase in the affordable housing segment:
Property cost per sq ft.
GST rate on a flat purchase.
ITC benefits for a material cost of Rs 1,500 at 18%.
GST on affordable housing before April 1, 2019.
GST on affordable housing after April 1, 2019.
The sales of under-construction housing units have witnessed a slowdown after a peak at the start of the 2010s. The government has since, flat for sale in Kharghar by owner stepped in, to give this segment a boost by reducing the GST and increasing the tax deduction limit on home loan interest repayment to Rs 3.50 lakhs. In the Interim Budget 2019, the government inserted a new Section 80EEA, to offer an additional benefit of Rs 2 lakhs, to first-time buyers of affordable properties. The GST impact on the real estate sector, combined with these cost advantages, is gradually expected to boost buyer sentiments.
For developers, an increase in demand would help them to sell off their stock and thereby, not have to worry about paying taxes on inventory. Data available with PropTiger.com show that real estate developers in India’s nine prime residential markets are sitting on unsold stock of over 7.50 lakh homes.
Impact of GST on luxury property.
Under the new GST rates, buyers of luxury properties will save more than they would have earlier. Here’s a look at how to calculate GST on flat purchases in the luxury segment:
Property cost per sq ft.
GST rate on a flat purchase.
ITC benefits for a material cost of Rs 13,000 at an average of 15%.
Before April 1, 2019.
After April 1, 2019.
GST fact check: Did you know?
Residential projects with up to 15% commercial space, are treated as residential properties under GST.
The effective GST on commercial property is 12%.
You do not have to pay any GST on the purchase of plots.
You do not have to pay any GST on buying a flat that is ready-to-move-in.
Landlords do not have to pay GST unless the tenant is a business company.
GST on house registration: GST does not subsume stamp duty or registration charges; you still have to pay these duties while buying a property.
GST is applicable to the services that banks offer, as part of the home loan, including processing fee, legal fee, etc
GST has subsumed at least a dozen other taxes.
Sellers increase the cost of ready-to-move-in properties, to factor in the GST cost.
Despite the applicability of GST, under-construction homes are cheaper than ready homes.
Must-know facts about GST
GST is not applicable to ready-to-move properties; it is applicable to under-construction properties only.
It is important to note that the GST does not cover the real estate sector under its ambit. The tax rate applicable to a property building is charged under ‘work contracts’. This is precisely why a developer cannot charge GST on the sale of ready-to-move-in homes. Upon completion and after receiving the occupancy certificate, the property is categorized as ready-to-move-in and is out of the purview of the work contract. In short, the GST would apply to the sale of under-construction properties that have yet to receive the OCs.
GST is not applicable to land transactions.
The sale of land is also outside the purview of the GST on construction services, as the sale does not involve the transfer of any goods or services. As the cost of land is a crucial factor that determines property prices, GST provides a standard abatement of 33% of the total contract value, towards the value of land for taxable real estate transactions.
Example: How to calculate GST on under-construction property.
Suppose that an under-construction property worth Rs 100 is sold by a builder to a buyer. To calculate the GST on the building, Rs 33 will be counted out as the land value and the GST on construction would apply only to the remaining Rs 77.
GST impact on stamp duty and registration charges.
Despite the demands made from time to time, ever since the GST regime into force, to discontinue stamp duty and registration charges on the property, the government has made no move on this front. Hence, property transactions in India continue to attract stamp duty and registration charges. While states levy stamp duty in the range of 5% -10%, the registration charge is either 1% of the property value or a standard fee.
Note: GST on flat registration: There is no GST on the registration charges that are paid while registering a property.
Can we except GST to subsume stamp duty and registration charges in the future? Experts do not think so.
” A large part of the revenue earned by states in India is through stamp duty on property deals. If states were to let go of this income, the exchequer would suffer much higher losses than it already does. This fact leads us to believe the possibility of the GST subsuming the two charges is nil, at least in the foreseeable future,” says Prabhansu Mishra, a Lucknow-based lawyer.
GST real estate timeline.
2000: The then PM Atal Behari Vajpayee sets up a panel to design a GST model.
2004: The then finance ministry’s advisor Vijay Kelkar recommends that GST replace the existing tax system.
2006: Former finance minister P Chidambaram sets April 2010 as the deadline for GST implementation in his budget speech.
2011: March 22: Government tables 115th Constitution Amendment Bill in the Lok Sabha, to introduce the GST.
2014: December 18: Cabinet approves 122nd Constitution Amendment Bill to GST.
December 19: FM Arun Jaitley introduces the Constitution (122nd), Amendment Bill, in the Lok Sabha.
2015: May 6: Lok Sabha passes GST Constitutional Amendment Bill.
May 12: The Amendment Bill is presented in the Rajya Sabha.
2016: September 2: 16 states ratify the GST Bill; President gives assent to the Bill.
September 12: Cabinet clears the formation of the GST Council.
September 22-23: The GST Council meets for the first time.
November 3: The Council decides on a four-slab tax structure of 5%, 12%, 18%, and 28%, plus additional cess on luxury and sin goods.
2017: July 1: GST is rolled out; an 8% rate proposed on under-construction properties.
2019: February 24: Government reduces the GST rate on the under-construction property to 5% from 12%, and 1% from 8% on affordable housing.
May: Government gives builders a one-time option to choose between the old GST rate with ITC or new lower GST sans ITC. Those not making a choice are automatically switched to the new regime after May 20.
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