GST on Real Estate: What Homebuyers and Builders Should Know

The introduction of Goods and Services Tax (GST) has significantly impacted the real estate sector in India. Homebuyers and builders need to understand the applicable GST rates, exemptions, and compliance requirements to avoid financial and legal complications. This article provides a detailed guide on GST in real estate.

1. Applicability of GST on Real Estate

GST applies to the sale of under-construction properties but not to the sale of completed properties or resale transactions.

Key Points:

• GST is not applicable on the sale of ready-to-move-in properties.
• GST is applicable to under-construction properties and works contracts.
• Land transactions are outside the scope of GST but may attract stamp duty.

2. GST Rates on Real Estate

As of the latest GST Council updates, the applicable GST rates are:

• Affordable Housing: 1% (Without ITC)
• Non-Affordable Housing: 5% (Without ITC)
• Commercial Real Estate: 12% (With ITC)
• Works Contract Services: 18% (With ITC)

Definition of Affordable Housing:

• Carpet area up to 60 sq. meters in metros.
• Carpet area up to 90 sq. meters in non-metro cities.
• Value up to Rs. 45 lakh.

3. Impact on Homebuyers

Key Considerations:

• Buyers of under-construction properties must pay GST at applicable rates.
• No GST is charged on completed and ready-to-move-in properties.
• Developers cannot claim Input Tax Credit (ITC) for residential projects but can for commercial projects.
• GST applies only on the property value excluding land cost (one-third of the total price is deducted for land).

4. Impact on Builders and Developers

Compliance Requirements:

• Charge GST on invoices issued for under-construction projects.
• Maintain proper documentation for tax credits and compliance.
• Ensure correct categorization of projects (affordable/non-affordable housing).
• Pay GST under reverse charge mechanism for specified construction services.

ITC Implications:

• ITC is available for commercial projects but not allowed for residential real estate.
• Builders need to pass the benefit of ITC to customers in cases where applicable.

5. GST on Rental Income

• Residential property rental: No GST unless rented for commercial use.
• Commercial property rental: Attracts GST at 18% if the annual rental exceeds Rs. 20 lakh.

6. Exemptions and Special Cases

• Land purchase: Exempt from GST, but stamp duty applies.
• Resale of property: Exempt from GST.
• Joint Development Agreements (JDA): GST applies to construction services.

7. Filing and Compliance

Builders Must:

• Register under GST if turnover exceeds Rs. 20 lakh.
• File GST returns monthly or quarterly (as per eligibility).
• Ensure compliance with Reverse Charge Mechanism (RCM) where applicable.

Conclusion

Understanding GST on real estate is crucial for both homebuyers and builders to ensure compliance and cost-effectiveness. Buyers should factor in GST when purchasing under-construction properties, while developers must ensure correct tax filings and compliance. Staying informed about GST changes will help avoid unexpected financial burdens and legal complications.