The Indian real estate sector, a vital contributor to the nation's economy, has undergone a transformative shift with the introduction of Goods and Services Tax (GST). This tax overhaul has redefined the financial landscape for both developers and homebuyers, bringing with it a set of complexities that merit exploration.
Goods and Services Tax, a unified taxation system implemented in India, has replaced a complex web of indirect taxes. For the real estate sector, GST serves as a comprehensive tax applicable to the sale, purchase, and leasing of both under-construction and completed properties.
Nevertheless, GST does not apply when purchasing a property in completed projects. Legally, a completed project is defined as one that has obtained a completion certificate (CC) from a competent authority. According to Para 5 of Schedule-III of the CGST Act, 2017, the sale of land and building is not considered a supply of goods or services if a completion certificate has been issued for the unit.
Buyers in India are required to pay GST on the acquisition of under-construction properties, including flats, apartments, bungalows, and developable land. The GST rates are applicable as per the different property type. Property type can be classified as Affordable Housing and Non-Affordable Housing.
The Government has taken housing initiatives which encompass prominent programs like the Jawaharlal Nehru National Urban Renewal Mission, the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana, and state government housing schemes. It provided clarification that government-led mega housing projects designed for the common man will incur only a 1% GST under the new regime.
Is GST applicable to ready-to-move-in flats, or does it exclusively apply to under-construction flats?
The tax rate for a property building is applied under 'work contracts,' excluding the application of GST on the sale of ready-to-move-in homes. Once a property is completed and has obtained the occupancy certificate, it falls outside the realm of work contracts. In essence, GST is applicable to the sale of under-construction properties that have not yet received occupancy certificates. It's worth noting that in the previous tax regime, buyers were also required to pay service tax on the purchase of ready-to-move homes.
However, given that the developer or owner has already paid GST during the purchase, this cost is eventually incorporated into the overall property cost. In summary, while there is no direct GST application on ready homes, buyers indirectly bear this expense as part of the overall property cost.
GST is applicable at 18% on properties let out for commercial purposes. Similarly renting of residential property for business purposes shall be treated as supply of services and hence taxable under GST.
1. Where properties are rented by charitable or religious trusts for religious purposes, GST shall be exempt if:
2. Where property is rented for residential purposes and is used in personal capacity for use as residence, the same is exempt from GST.
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