Impacts of GST Rate on Real Estate: All You Need to Know

GST , which is considered to be one of the biggest revolutions in the taxation process, has simplified the complex indirect tax system that had the challenges of multiple levels of taxation. The real estate sector, which is a significant contributor to India’s GDP is now able to combine the taxes imposed at different levels, both for buyers and the builders, hence making it transparent and simpler.One of the key offerings of GST in the real estate sector is the introduction of Input Tax Credits (ITC) . Before GST, the developers paid a variety of taxes such as VAT, entry tax, service tax, etc. as the input tax liability which could not be credited easily against their output tax liability. Hence the process was inefficient, complex, and cascaded the taxes at various levels.

Input Tax Credit or ITC is the tax output on purchase of product or service. This can be used to reduce tax liability when you sell the final product.

Suppose you have paid Rs. 1000 as taxes on the input good and service while the construction was going on. Now, on completion of the project, your output tax liability stands at Rs. 1500. With the provision of ITC, you can now claim the input credit of Rs. 1000 and liable to pay Rs.500 only. Hence it allows you to deduct the taxes already paid as input tax liability and pay the remaining balance. ITC can be claimed for properties developed for commercial use and not personal use.

• At the time of the claim, all the input goods and services mentioned in the claim must be received.
• The claimant must hold all the original invoices and bills as proof of purchase.
• The supplier must have already deposited the tax charged from the builder on input goods and services.
• The claimant and the supplier must have filed valid tax returns.

With freedom from paying multiple taxes and duties at various stages and the introduction of ITC rules, the builders and contractors can expect a higher profit margin. The cost of construction may reduce with merged taxation and input credit options. Also, the entire process will be simpler and easy to track.

As per the initial GST regime, a single tax of 12% was fixed for the properties that are under construction. This was further reduced from 12% to 5% with effect from 1st April 2019. Also, if you are buying ready-to-move properties, no GST will be applicable. As compared to earlier tax laws, where both the buyer and developers were charged multiple taxes and duties, buyers can now expect better pricing, post-GST.

The other associated stakeholders, such as suppliers of construction materials, labourers, etc. will be impacted as per the taxation rules imposed on the goods and services provided by them. For example, the increase or decrease in GST rates for paints, cement, marbles, etc. will affect their profit margins subsequently.

GST has been implemented to make the process hassle-free, compliant, and transparent. Hence all the stakeholders of real estate can get a better view of their interests and liabilities. Also, the buyers can now expect better deals and more clarity on pricing.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.