GST, an Indian tax revolution rolled out on July 1, 2017, became known as India’s most significant tax reform and a significant cause of stress, causing havoc amongst the taxpayers.
In the earlier tax regime, i.e., VAT, the purchaser was subjected to VAT payment, service tax, stamp duty, and registration charges when the property was under construction.
Property purchased after completion, only required to charge stamp duty and registration charges. With the implementation of GST, the tax process has been simplified, as well as transparency is assured in the functioning of the real estate sector.
The gst impact on real estate for the given segment is as follows –
- Residential properties, which aren’t a part of the affordable housing segment GST, are charged 5% without Input Tax Credit (ITC). If you need further information regarding GST rates in your industry, you can click here to access the consent letter for gst.
- For residential properties that are a part of the affordable housing segment, GST is charged 1% without Input Tax Credit.
- However, GST doesn’t apply to the sale of completed properties or the resale of old properties.
Since real estate in India is not directly demarcated under the GST regime, various activities and services in the sector are taxable. All under-construction properties will charge a GST of 5% with no input tax credit. However, GST won’t apply to ready-to-move-in properties.
On 9th September 2021, the latest impact of GST on the real estate sector and these are as follows:
- Villa and flat owners started to charge above INR 7.5k every month to their resident welfare communities on maintenance charges. The Honorable high court of Madras stayed a single judge’s order on 9th September 2021.
- Authority of Advance Ruling of Telangana state ordered that GST be paid from the transfer date of possession regarding building construction.
- Maharashtra AAAR stated 18% GST, applicable on the sale of Transferable Development Rights (TDR) and Floor Space Index (FSI).
The GST, along with demonetization, has hit the real estate ranking hard due to its liquidity crunch and compliance addition. This has highly affected the boundaries of development prospects and investments in the cities. According to Urban Land Institute reports, these factors led towards a lower ranking.
According to reports mentioned in ‘Emerging trends in real estate–Asia Pacific 2018’, in the investment destination graph, Mumbai fell to 12th rank while Bangalore and Delhi to 15th and 20th respectively.
The foreign investors started to withdraw from the market since the GST rate was increased upto 8-10%
The real estate sector is one of the most vital sectors of the Indian economy as it contributes 5-6% of GDP. The employment rate in India has also gone up. GST has provided a simplified tax system, brought a lot of relief and transparency in the real estate sector, and minimizes unscrupulous transactions.