Nabil Patel Spilling The Beans: How GST is charged now VS How it will be
charged in the near future?
On 24 February 2019, the 33rd meeting of Goods and Service Tax (GST) Council was held. In the meeting, it was proposed that rationalisation of GST rates on real estate is important. The cut is in accordance with the industry expectations. In case this new proposal is accepted and put into action, the non-affordable under-construction properties (property costing ₹45 lakh and above) would be charged 5% GST instead of 12%. On the other hand, the GST rate has been brought down from the current 8% to 1% in case of low-cost or affordable housing. Industry leaders like Nabil Yusuf Patel believe it is important for buyers to the impact of GST. However, to understand the impact, you first need to know how GST is charged.
How is GST charged?
For tax purposes, when an under-construction property is bought, the process of paying the builder is considered paying for the service of a project. Earlier, service tax was implemented on it. But, since the launch of GST, service tax got replaced in these transactions.
Nabil Patel explains that paying for a completely built property is not considered a service and hence, a buyer need not pay GST for it.
According to the current GST regime, purchasing a non-affordable under-construction property attracts GST. The GST rate is 18% on two-thirds of its value. This equals to 12% GST (on total value) including full input tax credit (ITC). With the help of ITC, businesses can reduce the GST amount paid on inputs or raw material from the amount that has to be deposited on the output. The credit received is then passed on to the buyers. In the same way, GST is charged at 12% on two-thirds of the value of affordable under-construction property. This results in 8% with full ITC. Since the cost of the land is considered one-third of the value, it is not considered a part of the GST regime.
A buyer has to incur the expenditures made for stamp duty and registration fee on a property as well. The stamp duty depends on the respective state governments, which generally stays between 5% and 8% across the country. Consecutively, while buying a house, a buyer has to incur an additional expense, about 20% of the property value in GST and other fees.