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There is no denial to the fact that the Goods and State Tax regime has made the trade & commerce all the more progressive and consumer centric. However, the real estate sector is one of those realms in economy where this user friendly tax policy is not yet ruled out all the complexities. The other 2 composite spheres where GST has not been fully effective are petroleum and alcohol.

Currently the buyers of under-construction properties are facing intense confusions and tax burden due to complex GST structure in case of real estate projects.

Experts have now pointed that these complexities are going to increase the cash crunch among the builders & developers and affect the ease of doing business.

GST and Real Estate

#1. How is GST applicable in real estate sector?

S.No. Description of Services GST  Rate
1. Construction of a civil project or a part thereof, for sale, wholly or partly.

[The total amount charged from buyer is inclusive of the cost of land.]

12% With Input Credit (but no refund of excess ITC)
2. Composite supply of Works contract as per section 2(119) of CGST Act 2017. 18% With Input Credit
3. All other services in real estate 18% With Input Credit

#2. Who pays GST charged on the entire project?

The GST liability on the entire project is incurred by the builder. The Builders having GST  registration always gets refund of their input tax credit (ITC). Hence, under normal circumstances, the builder does not pass on the entire tax burden onto the buyer.

#3. Where is the problem arising?

As discussed above, the GST is charged on the under construction projects only, this includes flats sold across India. Here, the buyer has to pay GST@12% of the agreement value. No GST is levied after the project gets final completion certificate.

Many buyers are now opting for the finished homes or opting for old ones to avoid the GST liability. This is ultimately is restricting the cash flow of realtors having GST registration, according to experts.

#4. How the real estate buyer is facing the problem?

The whole problem is due to the break-up of the cost of the project. The cost of land is kept out of the GST Ambit.

#5. What impact will this have on the market?

  • The restricted cash flow is compelling builder to invest to complete projects.
  • Besides the Banks, are afraid of non-performing assets in construction, so they are unwilling to avail loans. Non-banking finance companies (NBFCs), that came forward are too are facing a liquidity crunch.

Thus, the government has to carefully take into account these challenges and improvise the GST structure in real estate sector.

Author Bio

E-Startup India is a team of Chartered Accountant, Company Secretary and lawyers who can help if you need any support on any of the services like GST Registration, GST return filing, MSME registration, company incorporation, trademark, copyright, patent, ISO certification, Import-Export Code, busine View Full Profile

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  1. CA Saral Talati says:

    The author has mentioned that builder will get ITC refund, but as per Act GST refund is possible only under two circumstances i.e. zero rated and inverse duty structure

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May 2024