Things that property buyers should know about reduced GST

As the central and state government decides to cut the rates of Goods and Services Tax (GST) on real estate prices, this brings relief to home buyers as well as developers. This eliminates the confusion of the multi-taxation system to a large extent making things a lot simpler.

But there still seems to be an increasing need for information and a better understanding of GST and its impact on property prices. With the recent GST law change on 24th February 2019, there are some things that property buyers need to keep in mind.

1. Affordable housing projects

Housing projects earlier used to have 8% GST, which has now been reduced to 1%. But, there are also various carpet area requirements that need to be met in both metro and non-metro areas. Those with up to carpet area of 60 square meters in metro cities and 90 square meters in non-metro cities, towns, and villages falling under the Rs. 45 lakh cap will be eligible for the 1% rate.

2. Will GST help property buyers?

There was a meeting held on the 24th of February, 2019, that spoke about the impact of GST on the under-construction properties and private lottery distribution. The announcement on rate cuts was made on the 10th of March 2019 and was brought into effect on the 1st of April, 2019. After being accepted, GST was to be charged at 5% instead of 12% on any property costing above 45 lakh. It was a 7% deviation from the earlier rate.

3. GST’s impact on real estate

The impact of GST on real estate is twice than what was expected. For premium properties, the basic construction cost has come down a little, but the input tax credit is limited to 12%, which may not be enough to offset the fresh tax liability because of the taxes paid on other expenditures.

4. GST on ready properties

According to a CRISIL report, a developer currently pays excise duty and VAT on steel and cement at 18.1% and 27.7% respectively. If the Occupancy Certificate for the project is received, then GST will not be applicable. According to the new GST, steel and cement will be taxed at 18% and 28% respectively. However, a housing unit will be taxed at 12% with credit for taxes paid on inputs. So a buyer opting for a ready-to-move-in apartment saves himself from the unnecessary tax burden.

5. The tax rate on shops and offices within a residential real estate project

The GST rate on offices and shops within a residential real estate project is 5% without an input tax credit. This is applicable to projects under-construction as well projects that are launched after 1st April 2019. Buyers have the flexibility to opt for the earlier rate of 12% with an input tax credit for projects that were under construction on the cutoff date. These rates are applicable to shops and offices where the carpet area of commercial apartments is not more than 15% of the total carpet area.

These GST implications may not be the same for all states as different states have different state-level taxes. Though the cost of buying is expected to reduce, but not to the extent by which GST rates are reduced.