GST has had a huge impact on dealers and taxpayers because of its strict compliance requirements and it has become mandatory to pay this tax in almost all kind of business. Industry experts expressed a variety of opinions on how it will impact taxes in the real estate business. The first section of the article will attempt to explain the impact of GST on real estate sector in India.
The key foundation of the Indian economy is the real estate sector. In terms of creating jobs, the real estate sector comes in second to the IT sector in India with a GDP contribution of between 6 and 8%. So, before moving forward with the impact of GST on the real estate sector in India, it is essential to know GST and Real Estate separately.
What is Real Estate?
The phrase "real estate" in law refers to a person's ownership of land and structures. Real estate typically consists of both land and real property, as specified by the local laws of the area in which it is located. Real estate does not include land or other real property that is not held by any person.
What is GST?
The Indirect taxes in India, that has taken the place of other indirect taxes such as Value Added Tax (VAT) , excise duty, and the services taxThe Goods and Services Tax is known as GST ( Goods and Services Tax).GST became effective on 1st July 2017, but the approproval from Parliament was done on 29th March, 2017.
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GST Taxability of Real Estate Transaction |
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On the RTM properties (ready to move) |
According to the Schedule III, the sale of building is neither a supply of goods or services therefore it is not applicable, as it is treated as the transaction or activity.
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0 % |
there is no availability of the Input Tax Credit (ITC) |
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On those properties that are under construction |
As per Schedule I, it is considered as the supply of services therefore it is applicable.
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8 - 12 % |
There is the Availability of ITC |
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On resale properties |
Not applicable |
0% |
there is no Availability of ITC. |
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On sale and purchase of Land |
The sale of land is not considered as the supply of goods or services according to III Schedule, so it is not applicable.
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0% |
there is no Availability of ITC.
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On the combined supply of works contract |
Applicable |
18% |
There is the Availability of ITC |
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On the combined supply of Works contract of affordable housing, to the authorities of Government and for the use of public
|
Applicable |
12% |
There is the Availability of ITC |
How does GST Impact on Impact on Builders/ Developers / Contractors?
Due to the GST's integration of different taxes and the availability of input tax credits, developers' building costs are greatly decreased. Additionally, a decrease in logistical costs will be advantageous. Therefore, developers can notice an increase in margins
Earlier, Developers had to pay Excise duty, VAT, Customs duty, Entry taxes, etc. on raw materials and inputs under the previous tax system, as well as Service tax on a variety of input services such approval fees, architect professional fees, labour costs, legal costs, etc.
How does GST Impact on other Stakeholders?
Depending on whether the tax assessed on these items and services is increased or decreased, it will have an impact on connected services such as service providers, material providers, labours, etc. On the entire real estate market, this will have a big impact.. For instance, cement, which formerly had an effective tax rate of 27–31 percent, will now have an effective tax rate of 18 percent. The entire cost of building will rise as a result of an increase in cement costs. Below are some commodities related to the construction industry's GST rates:
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GST on the important Construction material |
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Sand |
5 % |
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Marble and granite |
28% |
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paints, steel, Cements |
18% |
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Fly ash Bricks and sand |
12% |
How does GST Impact on Buyers?
In contrast to the previous law, the GST is no longer applicable to finished or ready-to-sell houses and instead has a single tax rate of 12% for properties that are still being built. Resulting in profit for Consumers from the reduction of GST price. In the near future, purchasers might adopt a "wait and watch" strategy to learn more about how the GST will affect home prices and postpone making a purchase. Additionally, if buyers enjoy the benefits of the developer's input tax credit, the GST will benefit them in the long run.
Previously, under the Tax System, the buyers of houses that were still being built had to pay Registration fees, Value Added Tax, and also the stamp duty. Additionally, because VAT, Registration fees, and Stamp Duty were state taxes, property values differed from one state to the next. Additionally, developers were required to pay a number of taxes such sales tax (CST), customs duty, OCTROI, and others for which there was no credit available.
Input Tax Credit Treatment, Eligibility, and Ineligibility
Subject to certain restrictions, credit for taxes paid on all inputs and/or input services used or intended to be utilised in the course of conducting business would be eligible under the GST.
What are the Limitations on ITC?
Supplies received for the building of a moveable property on his own account, other than plant and machinery, are not eligible for an input tax credit.
NOTE: To the extent that they capitalise the aforementioned immovable property, "construction" includes reconstruction, renovation, additions, and adjustments or repairs.
Example: To house a branch office, Mantri Developers builds a structure. ITC is not available in this situation.
What are theConditions for ITC Claims?
A registered person can only claim an input tax credit if the following requirements are met:
- He is in possession of a debit note and a purchase invoice for taxes.
- He has provided a legitimate return.
- The supplier is responsible for paying the government the tax assessed on such supplies.
- He is in possession of a debit note and a purchase invoice for taxes
- Lastly, it is improper to use the products and services for personal use.
Impact of the Reverse Charge Mechanism (RCM)
The former Service tax statute is where the RCM concept was taken. The GST has greatly broadened the scope of RCM, which could be detrimental to developers.One of the key modifications made to RCM by the GST law is the requirement for registered persons to pay GST on all supplies of goods or services made to non-registered individuals.
Subject to limitations, developers are required to pay the GST on services they obtain from local governments, businesses that transport goods, individuals or firms that provide legal services, the government, or other local authorities.Additionally, under GST, the developer is not permitted to offset the tax due under RCM by the input credit made possible by the GST paid on the inputs. Either it can be paid via bank transfer or by cash.
Conclusion:
The Indirect taxation in India has been fully changed once GST came into existence. Additionally, the main advantage of GST in real estate is that it would increase transparency and accountability. It is also assumed that GST will have the same impact on Real Estate as that of the existing tax structure.
