For residential real estate, new GST rates have been introduced that will come into effect from the 1st of April 2019. Residential properties that are not part of the affordable housing segment will be charged 5% GST without Input Tax Credit (ITC). Residential properties that are part of the affordable housing segment will be charged 1% GST without Input Tax Credit (ITC). For under construction properties, GST is 12% and does not apply to the sale of completed properties (where completion certificate has been issued) or to the resale of old properties. Implementation of GST has simplified the taxation of Real Estate in India from 5% to 18%.
GST Rate Before And After April 1, 2019
|Type of Real Estate Property||GST Rate
(in effect till 31st March 2019)
(from 1st April 2019 onwards)
|Residential Property (affordable housing segment)||8% with Input Tax Credit (ITC)||1% without ITC|
|Residential Property (non-affordable housing segment)||12% with ITC||5% without ITC|
|Commercial Properties||12% with ITC||12% with ITC (unchanged)|
Affordable Housing Segment
The following are the qualifying criteria for a residential property in India:
- The total carpet area of the residential property cannot exceed 60 square meters in metropolitan areas.
- The total carpet area of residential property cannot exceed 90 square meters in non-metropolitan cities and towns.
- The total value of the property cannot exceed Rs. 45 lakh in either metropolitan or non-metropolitan areas.
The metropolitan areas that are included in the above definition are Delhi NCR (limited to Delhi, Noida, Gurgaon, Faridabad, Ghaziabad, and Greater Noida), Kolkata, Chennai, Hyderabad, Bengaluru, and Mumbai (entire Mumbai Metropolitan Region).
Benefits Of The GST Rate Reduction On Residential Properties
The reduction in GST rates will be implemented from 1st April 2019 and will provide the following benefits:
- Simpler tax structure
- GST rate reduction to 1% on residential properties in the affordable housing segment will provide a fair price of the property for the buyer
- Property buyers will no more face the problem of ITC benefits not getting passed
GST Rates For Construction Materials
GST applicability in real estate has two key aspects:
- Goods aspect – GST on construction material
- Services aspect – The service of construction itself
Both of these lead to the final cost of the property for the owner and different rates are applicable at different stages. The total GST applicable is calculated by adding the SGST (state GST) and CGST (central GST), thus 18% GST = 9% SGST + 9% CGST. 12% GST = 6% SGST + 6% CGST and so on.
GST rates on real estate construction materials:
|GST on Key Construction Material*|
|Crude Granite/Marble Rubble||5%|
|Fly Ash blocks||5%|
|Natural Sand (for construction)||5%|
|Glass for construction purposes||18%|
|Prefabricated structural components for building||18%|
|Marble/Granite (other than blocks)||18%|
GST on construction services
Construction services also include taxes that are applicable to many real estate transactions and are part of how GST on Real Estate is applicable. The following table shows how GST rates are applicable to few areas of construction-related services in the real estate sector:
|GST on Key Construction Services|
|Under construction properties under Credit Linked Subsidy Scheme||8%|
|Under construction properties (excluding those under the Credit-Linked Subsidy Scheme)||12%|
|Composite supply of works contract for affordable housing||12%|
|Composite supply of works contracts to government agencies/local govt. bodies||12%|
|Composite supply of works contract (other than government agencies/local govt. bodies/ affordable housing)||18%|
|Works Contract (other than govt. bodies)||18%|
*The above list is suggestive and rates are subject to periodic change. GST rates are correct as of 27th December 2018.
Following are the construction-related transactions/activities where GST is not applicable:
- Sale of ready to move in flats
- Resale of property
- Sale/purchase of land
No GST is applicable to the above transactions as the sale-purchase activity here does not include the supply of goods or services as per the GST Act.
Registration And Stamp Duty In Real Estate
Registration and stamp duty charges vary from one state to another and from one circle to another within the same state. Post GST too stamp duty and registration charges will continue to be applicable for both constructed and under construction properties across India. GST will be applicable only to under construction properties being sold.
Input tax credit for real estate developers
After the introduction of GST, input tax credit (ITC) can be claimed by real estate developers can claim an input tax credit (ITC) for various inputs (cement, bricks, sand, etc.) that are required for the building process. Some of the concerns with respect to ITC claims made by real estate developers include:
- Each input cost (materials, labor, etc.) has to be separately analyzed to provide estimates of total GST payable
- During the period of the construction project, the cost of commodities will change which will make it challenging to provide accurate estimates of upfront costs and file for an input tax credit on that basis
- To offset the increase in other (non-GST) costs, no mechanism is in place while the benefit of the input tax credit is only applicable to GST paid
Conditions For Claiming Input Tax Credit In Real Estate
After the introduction of GST in real estate, as per GST Act rules, input tax credit (ITC) equal to the total tax paid may be claimed by real estate developers in the following cases:
- The claimant can produce a debit note/purchase invoice/tax invoice as proof of GST being deducted
- The goods/services (or both) have already been received by the claimant.
- The ITC claimant has not used the goods/services (or both) received for personal use.
- All taxes that were due has been paid to the government by the supplier
- A valid GST return has been filed by the ITC claimant
Impact Of GST On Real Estate
Due to demonetization and RERA (Real Estate Regulation and Development Act, 2016) implementation in 2017, the GST implementation caused a slump in the real estate industry.
But in early in 2018, demand and supply for real estate increased primarily because of strong growth in affordable and mid-income housing. In big cities, housing prices declined by 2% by the third quarter of 2018 (as per a report by Liases Foras) whereas in across India, housing prices were either stagnant or rose marginally.
These decline in prices were mainly a result of oversupply and not the result of GST because in most cases input tax credit (ITC) benefits were not passed on to the home buyer by developers. And whenever they were, price changes were negligible.
The resale market also faced a decline of 15% to 20% in Delhi NCR as per the Liases Foras report even though GST is not applicable to resale properties. Therefore, it can be said that the impact of GST on real estate can only be more clear with time.