GST on Real Estate transactions

Transaction Transaction GST % ITC

Ready To Move (RTM) properties for

which completion certificates are available Not Applicable 0 Not Applicable

Under Construction Properties (For Homes Treated as supply of services

Purchased Under Credit-Linked Subsidy Scheme) & hence taxable 8% Yes, Available

Under Construction Properties

(Other than above) Taxable 12% Yes

Works contract Taxable 18% Yes

Composite Works contract Taxable 18% Yes

Composite Works contract to Govt. Authorities Taxable 12% Yes

Resale of properties Not Applicable 0% NA

Land transactions (purchase or sale) Not Applicable 0% NA

Composite Works contract to

General Public Taxable 12% Yes

Composite Works contract to

Affordable Housing Taxable 12% Yes

Rent from commercial spaces Taxable 12% Yes

Rent Income from residential property

for residential purpose Not Applicable 0% NA

Impact on Buyers: A single tax rate of 12% is applicable on properties under construction while GST is not applicable on completed or ready to sale properties. In the long term, GST will a positive impact on buyers if the benefit of input tax credit received by the developer is passed on to the buyer.

Impact on Developers / Builders / Contractors

After GST, Builders’ construction costs have significantly reduced as multiple taxes are subsumed and due to the availability of input tax credit along with reduction in cost of logistics will be an added benefit. On the downside, developers have to do multiple calculations to arrive at ITC in order to pass it on to the buyers. Hence, in most cases, they can pass on the ITC only during the final stages.

Reverse Charge Mechanism (RCM): The scope of RCM has significantly expanded in GST which may adversely impact the developers. One of the significant additions to RCM under the GST law is, if goods are procured / service are received from a person who is not registered under GST, a registered person under the GST has to pay GST on all such supplies. In cases where services are received from goods transporters, legal services received from an individual or firm, services received from the government or local authorities, like municipalities, etc. (subject to exceptions), developer has to pay the GST on the same.

Applicability of Stamp Duty: Stamp duty will continue to be applicable on both completed properties and under-construction properties as was the case with pre-GST regime. In most developed countries, Stamp Duty has been subsumed in GST.