Want to buy a property? know GST rates here
GST is expected to benefit both home buyers and developers.
Most of us aspire to own a house and to achieve that goal we strive hard through our savings and investments. We face several hurdles and come across many official formalities to accomplish our dream.
In accomplishing this dream, we need to understand many things and one such aspect is related to the recent introduction of Goods and Service Tax (GST), which has created a lot of confusion in regards to tax rate.
When GST was launched, it subsumed many taxes and came up with a uniformed tax regime for the country.
GST rates are different for various segments, and there is a particular tax rate that you would like to remember for real estate while purchasing a property.
Recently, the central board of excise and customs (CBEC) issued a clarification in matter of GST rates on the under-construction and ready-to-move-in property.
Here's a list of GST rates you need to know before purchasing a house.
According to GST law, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier, is a supply of service and liable to this regime.
GST for under-construction property or flats
In case you have paid for a house to a builder before July 1, 2017, GST is not payable on such property even if construction is completed after this date.
Then such property will attract a service tax of 4.5% because as per the Point of Taxation Rules, 2011, applicable to Service Tax, where the invoice was raised or payment prior to the appointed date under GST.
Because the point of taxation arose before the appointed day, such transaction attracts service tax and not GST.
If you have made part payment to the builder before July 1, 2017, then 4.5% service tax is applicable on the invoices raised or consideration paid before this date.
When making the other half payment to builder after July 1, 2017, you are liable to pay 12% GST rate against the invoices.
It must be noted that with effect from July 1, 2017, the builder is eligible to avail full input tax credit (ITC) on goods and services for paying output tax at 12%.
Furthermore, any reduction in tax rate on supply of goods or services or the benefit of input tax shall be passed on to the recipient by way of commensurate reduction in prices.
Anti-profiteering authorities have been set up to examining whether ITC availed by a registered person have actually resulted in a commensurate reduction in price of the goods or service supplied by him.
You should remember that you are eligible for 12% GST rate with full ITC on purchase of under construction residence or commercial properties from a builder involving transfer of property in land or undivided share of land.
Interestingly, the actual GST rate for under construction is actually 18%, but as 1/3 of 18% is deemed as the value of land or undivided share of land supplied to the buyer of the property.
GST rate on resale property or flats
There would no GST on ready-to-move-in or completed property as per para 5(b) of Schedule II of CGST Act, 2017.
GST rate on homes purchased under CLSS
If you have purchased a property under the Credit-Linked Subsidy Scheme (CLSS), you are eligible for 12% GST rate. The effective rate of 8% after deducting one-third of the amount charged for the house towards the cost of land.
The government made this move effective from January 25, 2018.
CLSS comes in when a property is purchased through schemes like - Economically Weaker Sections (EWS), Lower Income Group (LIG) and Middle Income Group-1 (MlG-1) or Middle Income Group-2 (MlG-2) under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY Urban).
BankBazaar report mentions that GST is expected to benefit both builders and buyers.
As per the report, a builder pays various indirect taxes and duties during the construction of a property – house or complex. He passes on this cost to the end users. But with the rollout of GST, all these taxes have been combined into one, and thus has resulted in lowering the cost of the property.
For buyers, the report highlights that though GST of 12% is on a higher side, there is clarity and uniformity in taxation which they would appreciate and hopefully embrace GST fully.
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