GST effect on Residential Properties

Even after these years of GST, there is lot of scope of improvement in the GST regime. Though, the Government is introducing various amendments from time to time. Even then, the Government has yet to deal with the issues and implications.

On the other hand, GST has also simplified the complexities of previous tax era. For instance, in previous tax regime, various types of state tax as well as central taxes were implied on a single transaction. But after introduction of GST, it has subsumed multiple indirect taxes and offered us a uniform regime. Similarly, various changes have been made to the Real Estate Sector since the launch of GST and still there is a scope of improvement which Government will keep on amending from time to time. The rates of GST on real estate housing will potentially lower the buyer’s burden.

GST On Affordable Housing;

The applicable criteria for eligibility of a residential property in the affordable housing segment as part of the 33rd GST Council Meeting press release held on 24^th February 2019. GST rates had been amended for residential real estate which came into effect from the 1st of April 2019.

As per 33^rd GST Council Meeting, GST on residential properties that are included in the affordable housing segment is charged at 1% without ITC. The following are the key affordable housing segment qualifying criteria for a residential property in India:

> Total carpet area of the residential property cannot exceed 60 square meters in metropolitan areas.

> Total carpet area of residential property cannot exceed 90 square meters in non-metropolitan cities and towns.

> Total value of property cannot exceed Rs. 45 lakh in either metropolitan or non-metropolitan areas.

For purposes of this definition, metropolitan areas in India include Delhi NCR (limited to Delhi, Noida, Gurgaon, Faridabad, Ghaziabad and Greater Noida), Kolkata, Chennai, Hyderabad, Bengaluru and Mumbai (entire Mumbai Metropolitan Region).

GST is not applicable to the following construction-related transactions/activities:

1. Sale of ready to move in flats.

2. Resale of property

3. Sale/purchase of land

Sale of ready to move in properties do not qualify as the supply of a good or service, hence GST does not apply. The concessional rates will be effective on residential property sales only and not on Commercial properties as GST on commercial properties has not been discussed by the GST council.

Affordable houses being constructed in ongoing projects under the existing central and state housing schemes presently eligible for concessional rate of 8% GST (after 1/3rd land abatement).

GST on properties Other than Affordable Housing

GST on residential properties that are NOT included in the affordable housing segment is charged at the rate of 5% without Input Tax Credit shall be applicable on construction of,-

a. All houses other than affordable houses in ongoing projects whether booked prior to or after 01.04.2019. In case of houses booked prior to 01.04.2019, amended rate shall be available on installments payable on or after 01.04.2019.

b. All houses other than affordable houses in new projects.

c. Commercial apartments such as shops, offices etc. in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.

CONDITIONS:

The tax rates of 1% (on construction of affordable) and 5% (on other than affordable houses) shall be available subject to following conditions,-

a) Input tax credit shall not be available,

b) 80% of inputs and input services (other than capital goods, TDR/ JDA, FSI, long term lease (premiums)) shall be purchased from registered persons. On shortfall of purchases from 80%, tax shall be paid by the builder @ 18% on RCM basis. However, Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on capital goods under RCM at applicable rates.