There are several costs involved in developing a residential or commercial project. Apart from the primary construction costs and costs of raw materials, certain taxes are also involved. Completing all formalities becomes a challenge for developers and buyers. Moreover, the introduction and implementation of the Goods and Service Tax (GST) and its latest revisions have created some confusion among the common public.

In this article, we aim to present all that one needs to know about GST, as applicable to the Indian real estate sector, while buying a house.

According to the revised GST schedule, real estate includes, "construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly".

GST and input tax credit

According to the revised GST schedule, as approved by the council, 12% GST with full input tax credit is available for use by the developer.

If the project is at an advanced stage, i.e. if major costs of raw material were incurred already before the implementation of GST, developers could not enjoy input credit on excise duty paid on certain raw material inputs. However, post-GST, developers can avail full benefits of input tax credit, especially while purchasing raw materials. Hence, if the project is at an early stage, more benefits can be enjoyed in terms of costs.

Impact of GST on projects of luxury segments

In the case of luxury properties, construction costs get reduced by a small margin. This is because of the GST attached to raw materials such as steel (18%), cement (28%), marble and granite (28%), lifts etc. which is higher, as compared to the permissible input tax credit limit of 12%.

Impact of GST on ready properties

Completed projects which have received the OC are exempt from GST.

Impact of GST on properties under construction

Purchase of under construction(residential or commercial) properties from a builder involving transfer of interest in land or individual to the buyer is subject to 12% GST with full input tax credit.

Impact of GST on affordable housing

The revised rate of GST on homes purchased under Credit Linked Subsidy Scheme (CLSS), Economically Weaker Sections (EWS), Lower Income Groups (LIG) and Middle Income Groups (MIG) is now 8% as opposed to the earlier rate of 12%. Concessional GST rates are also applicable for low-cost houses up to a carpet areaof 60 square metres per house in a housing project with infrastructural status.

Impact of GST on property rentals

GST rules also allow for tax exemptions for rental income from the residential property. Rental income of more than 20 lacs from renting or leasing for commercial purposes is subject to GST.

GST Reverse Charge Mechanism and its impact on costs of construction

Reverse Charge Mechanism (RCM) is a system where the recipient of services pays the service tax. What this means is a developer has to pay GST on services he avails from a person who is located in a non-taxable area, such as services provided by goods transporters, legal services provided by an individual or firm etc. This provision may adversely affect the developers as costs incurred in payment of taxes will increase.

Case 1- entire cost has been paid before the implementation of GST

If a buyer has paid the total property cost before the implementation of GST, or the invoice has been raised before implementation, he is under no obligation to pay GST as he has already paid service tax on the value of the agreement.

Case 2- part cost has been paid before the implementation of GST

If a buyer has made part payment before GST was effected, and is yet to make the remaining payment, then he is liable to pay GST on the remaining amount. However, no buyer is liable to pay GST retrospectively.