by 99Realty 
The introduction of Goods and Services Tax (GST) in India has significantly streamlined the taxation process for the real estate sector, impacting both residential and commercial properties. The GST framework offers a more unified approach by replacing the multiple taxes that existed previously, including VAT, service tax, and various other levies. This article delves deeply into the various aspects of GST on real estate, including its impact on under-construction and completed properties, its implications on pricing, and how it affects both developers and buyers.
GST Rates on Real Estate (Post-2019 Revisions)
In the 33rd GST Council Meeting held on February 24, 2019, key changes were introduced, effective from April 1, 2019. These changes continue to shape the taxation landscape for real estate transactions.
GST Rates for Residential Properties
The GST Council revised the rates for residential real estate, offering a significant reduction, particularly for affordable housing. The following rates apply:
- 5% GST (without Input Tax Credit) on residential properties that are not part of the affordable housing segment.
- 1% GST (without Input Tax Credit) on residential properties that qualify under the affordable housing segment.
Notably, GST does not apply to the sale of completed properties where a Completion Certificate has been issued, thereby simplifying transactions for finished homes.
GST on Under-Construction Commercial Properties
For under-construction commercial properties, a 12% GST (with Input Tax Credit) applies. However, once the property is completed and a completion certificate is issued, GST no longer applies to the sale.
What Qualifies as Affordable Housing?
The GST Council has clearly defined the criteria for properties that fall under the affordable housing segment:
- Metropolitan Areas: The carpet area of the property must not exceed 60 square meters.
- Non-Metropolitan Areas: The property’s carpet area must not exceed 90 square meters.
- Price Limit: The total value of the property, whether in a metro or non-metro region, must not exceed ₹45 lakhs.
The affordable housing GST rate of 1% without Input Tax Credit is a significant move aimed at boosting the affordability of homes for the middle and lower-income groups.
Benefits of the Revised GST Structure on Real Estate
The reduction in GST rates offers several tangible benefits for both developers and homebuyers:
- Increased Compliance: Builders are expected to maintain better compliance with the simplified tax structure.
- Fair Pricing: By reducing GST to 1% on affordable homes, buyers are assured a fair price for properties.
- Removal of ITC Misuse: The concern that developers might misuse Input Tax Credit (ITC) without passing the benefits to homebuyers is eliminated. The revised framework removes the dependency on ITC, simplifying the pricing mechanism for residential properties.
- Cost Control: With ITC no longer adding unused credits to project costs, the pricing of residential properties has become more transparent and competitive.
GST on Construction Materials
GST also impacts the cost of construction materials, which in turn affects real estate pricing. Here’s a breakdown of the applicable GST rates on common construction materials:
| Construction Material | GST Rate |
|---|---|
| Building Bricks | 5% |
| Fly Ash Blocks | 5% |
| Crude Granite/Marble Rubble | 5% |
| Roofing Tiles | 5% |
| Natural Sand (for construction purposes) | 5% |
| Marble/Granite Blocks | 12% |
| Refractory Bricks/Tiles | 18% |
| Glass for Construction Purposes | 18% |
| Prefabricated Structural Components | 18% |
| Portland/Slag Cement | 28% |
These rates indicate that essential construction materials like bricks and sand enjoy a relatively low tax rate of 5%, whereas high-end materials such as glass and marble slabs are taxed at 18% to 28%.
Registration and Stamp Duty: The State-Level Taxes
Even in the GST era, registration and stamp duty remain outside the purview of GST. These charges continue to be levied by state governments and vary significantly from one state to another. The imposition of registration fees and stamp duty applies to both under-construction and completed properties, ensuring that the state governments retain their revenue streams independent of GST.
Input Tax Credit (ITC) for Developers
The Input Tax Credit mechanism under GST was designed to avoid cascading taxes (i.e., “tax on tax”). Developers can claim ITC on materials such as cement, bricks, and labor used in the construction process. However, in the revised framework, developers cannot use ITC to reduce the effective tax rate on residential properties, ensuring that the benefits of reduced GST are directly passed on to the homebuyers.
Key conditions for claiming ITC include:
- A valid purchase invoice or debit note.
- The goods or services must have been received by the claimant.
- The supplier has already paid the applicable tax to the government.
- The ITC is used solely for business purposes (not personal use).
Challenges in Claiming Input Tax Credit
Despite the benefits of ITC, several challenges exist for developers:
- Fluctuating Material Costs: The price of construction materials often varies over the duration of a project, making it difficult to estimate the exact GST amount for claiming ITC.
- Non-GST Costs: Many costs involved in construction do not attract GST, yet developers cannot offset these expenses through ITC.
- Complex Compliance: The documentation and processes involved in claiming ITC are often cumbersome, adding administrative overheads to real estate development projects.
GST’s Overall Impact on Real Estate
The impact of GST on real estate has been profound, although its effect has varied based on the region and type of property. In cities like Delhi NCR, reports have indicated that resale property prices have dropped by 15% to 20%, largely due to the introduction of GST and the Real Estate Regulation and Development Act, 2016 (RERA). GST, however, does not apply to resale properties, a key point to note for homebuyers.
The introduction of GST was initially met with a slight downturn in housing prices due to the general economic slowdown and the aftermath of demonetization. Over time, as developers and buyers have become more familiar with the tax structure, the market has begun to stabilize, with affordable housing seeing a particular boost.
Also Read: India’s Real Estate Market: A $10 Trillion Growth Path by 2047
Conclusion
The implementation of GST has streamlined the tax structure for real estate, reducing compliance burdens and providing a clearer framework for both buyers and developers. The revised GST rates, especially the 1% for affordable housing, are designed to encourage homeownership in the middle-income segment. While challenges remain, particularly in the application of Input Tax Credit, the overall impact of GST on the real estate sector has been positive, leading to more transparent pricing and fairer competition among developers.
