The GST or the Goods and Services Tax, launched on July 1, 2017, is a comprehensive taxation system. It largely had a positive effect on prospective real estate buyers as it subsumed a host of indirect taxes and reduced the cascading effect. It brought transparency to the taxation process. Under the aegis of the ‘Housing for All by 2022’ scheme, the real estate industry is growing rapidly. Therefore, if you are looking for affordable housing, then it is important to know how to calculate GST on flats.
But before that, let us delve into the major changes brought about by GST in the real estate industry.
Impact on real estate
The real estate sector accounts for 6-8% of the Indian GDP. After the 33rd GST Amendment in April 2019, the GST rate on property transactions was reduced significantly. For affordable housing (within Rs. 45 lakhs), the GST rate on under-construction property went down from 8% to 1%. For other properties, it reduced from 12% to 5%. This significant drop was facilitated by the removal of Input Tax Credits (ITC).
These changes have ensured the fair pricing of a property. They also protect the interests of buyers by ensuring transparency and removing the Stamp Duty which burdened buyers under the erstwhile tax regime. Affordable housing and rental market have also gained popularity over the last couple of years.
However, the Reverse Charge Mechanism under GST has affected developers negatively. Under this, if a person registered under GST acquires raw materials from a person not registered under GST, then the former will have to bear the cost of GST for the transaction. Moreover, many people don’t know how to calculate GST and find the process cumbersome.
How to calculate GST on an under-construction property?
Now that we have discussed the positive and negative impacts of GST, we can move on to the process of calculation of GST on under-construction flats. Note that property without a Completion Certificate (CC) is deemed as under construction.
- For a property that is under construction, the government has offered relief for property buyers. A tax of 18% is levied on under-construction flats, out of which you are subjected to pay only two-thirds, that is, only 12% tax.
- A deduction of 6% (one-third of the total tax) is made because it is assumed that this is the value of the land being transferred. No tax is levied on the transfer of land. Therefore, the final effective tax paid by the buyer is 12%.
- After the 33rd Amendment made by the GST Council, the tax rate was slashed from 12% to 5%. However, this is only valid for a property without Input Tax Credit.
With the above information, you can quickly and easily become acquainted with the process of GST calculation. We, at Tata Capital, can make your worries disappear using our GST Calculator and our offers on home loan. What are you waiting for? Visit our website to learn more.