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written by khatabook | November 5, 2019

What was the impact of GST on Real Estate?

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Real estate is one of the most prominent sectors in the Indian economy and contributes to nearly 6 % - 8 % of the Gross Domestic Product (GDP). GST, which came into effect on July 1, 2022, had a profound impact on real estate. Under the previous taxation system, the buyers had to pay multiple taxes like VAT, service tax, stamp duty, registration charges and more when a property that was under construction was bought. However, if the property was purchased after it was completed, VAT and service tax was not applicable. In that case, the property buyer has to pay stamp duty and registration charges only.

Now, under GST (Goods and Services Tax), a uniform tax rate of 12% was payable on properties under construction. On the other hand, GST on under construction commercial property is not levied for completed or ready-to-sell properties.

The current GST rate on property is explained in the article. In 2019, the GST Council decreased the GST rates from 12 % to 5 % on residential properties and from 8 % to 1% for the affordable housing sector.

Let’s now talk about the effect of GST on real estate, more specifically the impact of GST on housing and rented property.

Did you know?

The GST rate on ready-to-move-in properties is 18%. But, one-third of this rate is deemed as the value of land supplied to the buyer of the property. Thus, the GST rate reduces to 5 per cent on under-construction properties or commercial properties with complete input tax credit.

Also Read: Effect of GST on the Indian Economy

GST Impact on Real Estate

Under the previous regime, if a property under construction was sold, then the following rates of taxes were applicable -

  1. VAT - 1 % to 4 %
  2. Service Tax - 4.5 %
  3. Stamp Duty - 5 % to 7 %
  4. Registration Charges - 0.5 % to 1 %

Changes in Real Estate Sector Under GST

Real Estate industry is the second biggest employer after the IT industry in India. GST has been significant in bringing vast improvements to this sector and solving the problems and challenges faced by the Indian taxpayers and property owners. The Goods and Services Taxation System has also been instrumental in bringing about transparency and accountability in the property and real estate business.

Since the multifarious taxes such as VAT, service taxes, etc. have been removed, the GST system has been a boon for home buyers purchasing property before its completion. Developers also had to pay excise duty, custom duty, CST, Entry Tax which was included in the cost which subsequently raised the price of the property. Post GST, the developers can now claim Input Tax Credit on the taxes paid by them which will decrease the cost for the developers and can, in turn, be passed on to the buyers.

  • A GST of 5 percent will be levied on all properties with no input tax credit.
  • GST will not be applied to properties after sale or ready-to-move-in buildings.
  • Home buyers pay a GST of 1% for affordable housing on under construction properties like flats, houses, etc. The GST rate 2022 is 5 % for non-affordable housing.

Positive Impact of GST on Real Estate Sector

  • GST simplified the complexities present under the previous taxation system and eliminated the problem of cascading of taxes.
  • Many compliance issues faced by developers and sellers have been removed by a uniform tax rate under GST.
  • Transparency has increased in the real estate business leading to higher trust and more ethical business practices.
  • Taxes such as VAT, Service Tax, Excise Duty, Entry Tax, Octroi etc. have been removed which has consequently raised the margins for the developers by reducing construction costs, the benefit of which is passed on to the property buyers.

Also Read: Impact of GST on Insurance and Banking

Rates and Applicability of GST for Various Properties

Let’s take a brief look at the different Real Estate GST rates in 2022 for various properties under the Goods and Services Taxation - 

Type of Property

Whether GST applicable

Rate of Tax

Whether ITC Available

Ready to Move properties

No

-

No

Under Construction Properties (For houses purchased under CLSS*)

Yes

8%**

Yes

Under Construction Properties (other than above)

Yes

12%

Yes

On Resale properties

No

-

No

On buying and selling land

No

-

-

Works Contract

Yes

18%

Yes

Composite Supply of Works Contract

Yes

18%

Yes

Composite Supply of Works Contract to Government

Yes

12%

Yes

Composite Supply of Works Contract for general public use

Yes

12%

Yes

Composite Supply of Works Contract for Affordable housing

Yes

12%

Yes

* CLSS - Credit Linked Subsidy Scheme

** A 12% GST is levied on all properties bought under the Credit-Linked Subsidy Scheme (CLSS) . However, a rate of 8% will be applied after deducting the 1/3rd amount towards the cost of land.

How will Developers, Builders and Contractors be affected?

In the previous regime, the contractors and developers had to pay service tax for various types of services such as legal fees, labour charges, professional fees and approval fees among others. Moreover, input tax credit was not available for CST (Central Sales Tax), Customs Duty, Entry Tax. etc which increased the price of the property, which was often borne by the buyers.

The cost of construction of property is greatly reduced as now the developer can avail of ITC under GST regime.

This leads us to the next important question -

How will Home Buyers be affected under GST?

  • The Central Government had enacted the Affordable Housing Policy in 2015 to address the housing requirements of middle and low income groups in India.
  • In its 33rd Council Meeting, the GST Council decreased the GST rates from 8% to 1% for properties that are under ₹ 45 lakhs.
  • Housing Schemes such as Jawaharlal Nehru National Urban Renewal Mission, the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana and housing schemes of state governments will attract only 1% GST.
  • GST is not applicable on purchase of plots.
  • GST is applied on services as a part of the home loans, such as processing fees, legal fees, etc.
  • Under construction properties are effectively cheaper than ready-to-move-in properties.
  • A home buyer has to pay house registration charges including GST on stamp duty and registration.
  • GST is not applicable on ready-to-move-in flats and only applied on under-construction homes.
  • The maintenance charges will be leviable on GST on real estate only if they are more than Rs. 7500 per month per member.

GST Impact on Housing 2022

Type of Property

Previous GST Rates (Till March 2019)

GST Rates from April 2019

Affordable Housing

8 % (ITC available)

1% (ITC not available)

Non-affordable Housing

12% (ITC available)

5% (ITC not available)

GST on Rented Property

If the property is rented for residential purposes, the landlord does not have to pay GST on their rental income. However, when the property is rented out for commercial purposes or business purposes, the GST on commercial property will be charged at the rate of 18% if the rental income is more than ₹ 20 lakhs per year.

Conclusion

GST has proved beneficial for the real estate industry as well as its allied sectors including cement and steel industry. The new tax regime has added to the profits of property developers and contractors and has also added to the growth of the economy. Despite the prices of properties being controlled by the market forces, GST rates have had a significant role to play as explained in the article above.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: List some benefits of GST on the real estate sector?

Ans:

Here are some positive effects of GST on real estate - 

  • More Transparent and Uniform System
  • Advantage for residential property owners with rental income
  • Benefit of ITC claimed by developer can be passed on to the buyer 
  • Removal of multiple taxes

Q: What is the GST rate 2022 on Cement, Steel and Marble?

Ans:

Given below are some of the important GST rates on various goods used in construction - 
 

Commodity

GST Rate 2022

Cement

18%

Steel 

18%

Marble and Granite

28%

Sand

5%

Paint

18%

Sand and Fly Ash Bricks

12%

Q: Is GST applicable on stamp duty under the real estate GST?

Ans:

No. Stamp duty and registration fees are not included in the calculation of GST under real estate.

Q: When was GST implemented in the real estate sector?

Ans:

GST was implemented in July 2017 in the real estate sector. However, a reduction in GST rates on real estate took place from 1st April 2019.

Q: Who pays the GST: the buyer or the seller?

Ans:

The buyers pay the GST, but businesses selling the products and services must remit it to the government.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.