GST on Real Estate
At the 33rd GST Council Meeting held on 24th February 2019, new GST rates have been introduced for residential real estate which will come into effect from the 1st of April 2019. The new GST rates on residential real estate transactions have been proposed as follows:
- GST to be charged at 5% without Input Tax Credit (ITC) on residential properties that are not part of the affordable housing segment.
- GST to be charged at 1% without ITC on residential properties that are included in the affordable housing segment.
GST on real estate in case of under construction properties is 12%. GST does not apply to sale of completed properties (where completion certificate has been issued) or to the resale of old properties. Builders receive input tax credit on the materials purchased from suppliers/contractors and under the current GST structure, were expected to pass it on to home buyers. However this has not happened so far. As a result there may be changes in the GST regime with respect to real estate in the future.
Real Estate has historically been a preferred investment choice for many Indians and the sector has been driven to a large extent through investments made in the residential property segment.During the pre-GST era of taxation, multiple taxes were applicable to real estate namely VAT, stamp duty charges, registration charges and service tax each of which featured different rates and also varied from one state to another. Implementation of GST on real estate has played a significant role in simplifying the taxation of Real Estate in India and can range from 5% to 18% depending upon some key factors.
GST Rates for Construction Materials
There are two key aspects of GST applicability in real estate. The first is the goods aspect i.e. applicable GST on various construction material and the second is the services aspect i.e. the service of construction itself. Both of these contribute to the final cost of the property for the end user (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. The following table shows how GST rates on real estate construction materials are applicable:
| GST on Key Construction Material* | |
|---|---|
| Building bricks | 5% |
| Crude Granite/Marble Rubble | 5% |
| Fly Ash blocks | 5% |
| Roofing tiles | 5% |
| Natural Sand (for construction) | 5% |
| Marble/Granite blocks | 12% |
| Refractory bricks/tiles | 18% |
| Glass for construction purposes | 18% |
| Prefabricated structural components for building | 18% |
| Marble/Granite (other than blocks) | 18% |
| Portland/Slag Cement | 28% |
*The list is indicative. Rates are correct as of 27th December, 2018 subject to periodic change.
GST on Construction Services
Construction services also feature taxes that are applicable to various real estate transactions that can be considered as part of how GST on Real Estate is applicable. The following table shows how GST rates are applicable to select 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 Credit Linked Subsidy Scheme) | 12% |
| Composite supply of works contract for affordable housing | 12% |
| Composite supply of works contract 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 indicative and rates are subject to periodic change. GST rates are correct as of 27th December 2018.
GST is not applicable to the following construction-related transactions/activities:
- Sale of ready to move in flats
- Resale of property
- Sale/purchase of land
In all the above cases, the sale-purchase activity does not include the supply of goods or services as per the GST Act, hence no GST is applicable to these transactions.
Registration and Stamp Duty in Real Estate
Registration and stamp duty on real estate have continued to remain in place as state government taxes subsequent to GST. These charges vary from one state to another and may vary from one circle to another within the same state itself. In the GST era, stamp duty and registration charges will continue to be applicable in case of both already constructed and under construction properties across India, while GST will be applicable only to under construction properties being sold.
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