GST on property is applicable in the case of construction of a complex, building, civil structure or a part of such structure since it is a supply of service. This includes a complex or building (whole or part) under construction and intended for sale to a buyer.
GST on property is not applicable if the sale takes place either after the building is completed and Completion Certificate has been received or after the first occupation. This is because the sale of the building is not considered as a supply of goods or supply of services as per CGST Act, 2017.
From the above, we can understand that GST is not applicable on sale of ready-to-move-in or completed property. It is applicable only to property under construction.
Below table will clear some queries that have been raised about the applicability of GST on properties.
|GST on Property for which completion certificate has been issued (ready-to-move-in/ completed property)||No GST is applicable.|
|Under Construction GST on Property where payment was made to builder before 01 July 2017, but construction is completed after 01 July 2017||No GST is payable even if
construction is completed after
1 July 2017.
Service Tax of 4.5% is payable.
(The transaction attracts Service Tax and not GST because as per Point of Taxation Rules, 2011 applicable to Service Tax, if invoice was raised or payment made before date of implementation of GST, point of taxation arose before implementation date of GST.)
|Under Construction GST on Property where part of payment was made to builder before 01 July 2017||4.5% service tax is applicable on
Invoices raised or payments made
before 1 July 2017.
12% GST is applicable to invoices issued after 01 July 2017.
Rate of GST
|Purchase of under construction residential or commercial properties from a builder with the transfer of an interest in either land or individual share of land from seller to buyer.||GST: 12%
(1/3rd of the property is considered as a land where GST is not applicable. 18% GST is applicable on 2/3rd of the property. 2/3rd of 18% is 12% GST payable.)
Input Tax Credit (ITC): Full
|Transactions that do not involve the transfer of an interest in either land or individual share of land. Example: Construction services provided by sub-contractor to builder||GST: 18%
Input Tax Credit (ITC): Full
GST council has exempted services pertaining to beneficiary-led individual house construction/enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY). This includes services provided by way of labor contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works related to the aforementioned scheme.
Works contract governs properties that are under construction. Under GST regime, 12% GST is applicable to the composite supply of works contract involving construction, erection, commissioning or installation of original works pertaining to
- A single residential unit which is not a part of a residential complex
- Low-cost houses up to a carpet area of 60 sq. per house in a housing project approved under the Scheme of Affordable Housing in Partnership introduced by the Ministry of Housing & Urban Poverty Alleviation
- Low-cost houses up to a carpet area of 60 sq. per house in a housing project approved under either the Affordable Housing in Partnership component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana or any housing scheme of a State Government
- Post-harvest storage infrastructure for agricultural produce which includes a cold storage
- Machinery processing agricultural produce as food stuff excluding alcoholic beverages, mechanized food grain handling system.
Under the previous tax regime, works contract attracted a service tax rate of 6%. This was a reduced tax rate under a special scheme known as Abatement Scheme. Under the Abatement Scheme, both developers and homebuyers received benefits. For purchase of a flat under construction, an abatement of 75% was allowed if an area of the flat was less than 2,000 Sqft and purchase price less than Rs 1crore. This reduced the effective tax rate from 15% to 4 %. If the cost of the flat under construction was above Rs 1crore and size of the unit was more than 2,000 sqft, the abatement was 70%. Then effective tax rate of 5% was applicable for payment of tax by the buyer.
In addition, States levied Value Added Tax (VAT), which ranges from 1% to 5% depending on the State.
While paying these taxes, developers don’t get a deduction of input tax during the previous regime. This meant that on the amount of excise duty and VAT they paid on certain raw materials, no set-off was available to them.
Under GST, input tax credit is allowed. Developers will be able to get benefits on taxes. The rate of 12% GST with input tax credit helps remove issues of dual taxation such as VAT and service tax. This puts an end to multiple taxes.