The Impact Of GST On Real Estate Transactions In India

GST On Real Estate Transactions which went into effect on July 1st 2017, has stressed out the majority of taxpayers and dealers. Industry analysts have varying opinions on how it will influence taxes in the real estate sector. This blog will attempt to highlight the relevant problems at the outset to aid in comprehending the various points of view.

In the previous tax system, the buyer was required to pay VAT, service tax, stamp duty, and registration fees when purchasing property that was still being built. Only stamp duty and registration fees were due when purchasing real estate after it had been completed; VAT and service tax were not applicable.

What Is the GST Rate On Affordable Housing Units?

GST On Real Estate Transactions by the Indian government (GOI) introduced its affordable housing strategy in June 2015 with the intention of addressing the housing needs of lower- and middle-class citizens. 

Common residential housing that is intended to be cost-effective is subject to a lower goods and service tax (GST), which provides assistance to those who can afford to buy a home at the time of purchase. 

In addition to knowing what an affordable house implies under the GST, home buyers just need to provide GST at the time of purchase, according to tax and investment experts.

GST On Works Contract & Real Estate Transactions

Depending on whether the work contract service is provided for the construction of residential apartments for sale that are affordable or residential apartments that are not affordable, the rate of tax that applies to the work contract service provided by a contractor to a promoter for the construction of a real estate project shall be either 12% or 18%.
 

GST On Construction Services Is 12.0% Affordable Housing Those Affected By The Floods In Kerala

Kerala state has experienced damage as a result of the floods that began in 2018. The non-governmental group that offers refuge while creating the solutions is the Habitat Technology Group. The society offers architectural consulting services as well as assistance for housing construction. A philanthropic organization in Kerala called M/s. Sri Sathya Sai Trust is working to house flood victims.

GST Rates on Purchase Of Flats, Property & Home Under CLSS

According to Schedule II, Paragraph 5(b), of the CGST Act of 2017, there will be no GST on resale, completed property, or flats.

For homes purchased through CLSS, the members of the 33rd GST Council resolved to reduce the GST rate from 8% to 1% in cases where the home's worth is less than Rs. 45 lakh.

Real Estate Ranking Affected After GST And Demonetization

Real estate has fallen in the ranks as a result of the liquidity crisis and elevated compliance expenses brought on by the GST and demonetization. The effects now include the possibility for urban growth and monetary investments. All of these factors, according to evaluations by the Urban Land Institute and consulting firm PwC, have an effect on rankings that are lower than they were previously.

Bangalore and Delhi both experienced the same fate, dropping from positions 1 and 13 to positions 15 and 20, respectively. Mumbai, which was formerly placed second, has fallen to position 12 on the investment destination graph.

Compared to the office sector's growth rate of 5 to 7%, rental rates typically climb by 8 to 10% annually. The issues are caused by an excess of luxury residences, which is scaring away foreign investors from the market.

How has GST impacted the rates for Different Construction Materials?

Taxes on Goods and Taxes on Services are the two types of GST that apply to real estate in India's building sector. Taxes on goods are levied on the purchase of building materials, whereas taxes on services are levied on the actual construction service. 

For different goods and services, there are various charges that apply. These taxes add up to increase the owner's overall building cost. The State GST (SGST) and Central GST (CGST) are added in equal amounts to determine the total amount of GST owed. Example: SGST + CGST equals 18% of total GST. This is true for all GST rates.

What Are The Registration and Stamp Duties?

The State is in charge of collecting registration and stamp duties on Real Estate Transactions. The cost of registration and the cost of the stamp may vary between states and between state jurisdictions. While GST is applicable to supplied Goods or Services of under-construction buildings, registration and stamp duties are applicable in case of every infrastructure-related transaction, including the sale or resale of property or the construction of new properties.

Input Tax Credit

Real estate developers can claim the Input Tax Credit (ITC) on construction inputs like labor, cement, bricks, and other materials under the GST regime, which has an influence on the real estate sector. In order to avoid the tax on tax positions, the ITC was introduced. The tax levied on the GST will be credited back to the developers under ITS. It was anticipated that the ITC would encourage developers to reimburse new homeowners for their credit benefits. When claiming the ITC, developers encounter the following issues:

• It is necessary to properly assess each input's receipt before submitting estimations of GST.
• It is challenging to offer precise estimations because the input prices are subject to fluctuate throughout time.
• For the purpose of claiming ITC, there is no provision to offset the price rise.

What Are The Conditions Of Claim?

Real estate developers are eligible to claim ITC if they meet the criteria listed below:

• For the purpose of claiming the ITC, the developer must present the invoices or receipts.
• The developer receives the products or services.
• No claim on personal-use products or services
• All past fees have been paid.
• He has correctly submitted a GST.

How GST And RERA Leads To Lower Real Estate Transactions Cost?

As a result of the tax mayhem caused by the goods and services tax, housing is now more affordable. The prices of homes decreased by an average of 3% in 2017, with Pune experiencing the largest decrease of 7% and Mumbai experiencing a 5% decrease. While costs in Delhi NCR were 2 percent less than they were previously.

According to reports, there isn't much demand, which lowers prices. Cities like Bengaluru, NCR Delhi, and Chennai saw lower 26%, 6%, and 20% decreases in sales, respectively. However, there has been a minor increase of 3% and 5%, respectively, after RERA was implemented in Mumbai and Pune.

Additionally, the introduction of any new projects experienced a decline as there were 56 percent less new launches than in Bengaluru, where there was a modest growth of about 41 percent in the number of new project launches. Due to the effects of the GST and RERA, the Delhi NCR saw a 6 percent decline in sales at 37,653 units, while prices fell by 2 percent.

So, after reading this blog you know a lot about GST On Works Contract & Real Estate Transactions as well as many other details.

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