Realty & GST

Vikas Wadhawan

Though the uniform tax regime has been discussed and debated across platforms, the impact of Goods and Services Tax (GST) on the real estate sector, right from the purchase of a home to construction and rental income segments, still needs to be deciphered more comprehensively. 

What it entails

The 12 per cent GST with full input tax credit applies to all projects that have not got an occupation certificate (OC) — irrespective of the stage of construction. This is because the GST is applicable on the works contract and not on immovable property. Also, since the building is not yet ready to occupy and is considered a work in progress, it attracts a GST charge in addition to the stamp duty and other registration charges. The GST shall be applicable on all instalments due for payment to the developer by the homebuyer on and after July 1, 2017, irrespective of the actual date of payment. Any instalments which were due and billed before July 1, 2017, shall be taxed as per earlier tax regime under service-tax.

However, the situation changes as soon as the projects get an OC. There is no GST charged on a project which has received an OC, as these projects are regarded as an “immovable property” which have no works contract component in them as they have already been completed. Buyers of these projects are required to pay only the applicable stamp duty and registration charges.

Under the Service-Tax regime, the homebuyer was supposed to pay 4.5 per cent of the cost of the property as taxes which is now replaced by the 12 per cent GST. The developer, however, is allowed to take an input tax credit on materials as well as services and pass on the input credits to buyers.  

What is anti-profiteering rule?

To ensure that the benefit of input tax credit is passed on to the end consumer, the government has prescribed anti-profiteering rules and set-up a regulator to monitor the same. A few consumer groups have already approached the finance ministry to complain about errant developers.  

Benefit for affordable housing

In the affordable housing segment the homebuyers stand to benefit more. The government has recently reduced the GST charge on under-construction affordable properties and low-cost housing to 8 per  cent. 

There has also been a demand to bring real estate in the realm of GST and subsume stamp duty and registration charges too. Immovable properties are a State subject and bringing stamp duties on immovable properties under GST seems to be an uphill task. The move will be beneficial for homebuyers and organised developers as it will bring greater transparency in land dealings too. 

The calculations under GST require careful analysis. We are yet to see a project to be completed from start to finish under the GST era and ascertaining the full impact of GST is still based on certain assumptions.

 — The writer is Group CFO, Housing.com, PropTiger.com and Makaan.com