GST Manual

Deal Acres

Last Update a year ago

Goods and Services Tax (GST), is the biggest change to taxes, making it harder to fix the market’s problems by getting rid of all the different taxes in the industry.

What is GST?

Goods and Services Tax, which went into effect on July 1, 2017, is an indirect tax that replaced the cascading effect of multiple taxes levied by both the central and state governments. The new tax combines a number of old taxes into one. This includes the central excise tax, service tax, octroi tax, surcharges, Value Added Tax (VAT), and other local levies. This makes it easier to pay taxes and reduces the chance of being taxed twice.

  • The government has put the GST on real estate into two tax brackets: 1% and 5%.
  • Affordable homes priced at less than Rs 45 lakh are charged 1% GST.
  • Under-construction homes worth more than Rs. 45 lacks have to pay 5% GST, but they don’t get ITC benefits.
  • Only these tax rates will be used for all goods and services.
  • All States and union territories in the country have passed the law.

Effects of GST on people who buy homes

As real estate is one of the most important parts of the economy, contributing an average of 5–6% to GDP and driving about 250 related industries, it has been expected for a long time that the Goods and services tax would have a bigger effect on the sector.

The new tax law aims to make things more clear by getting rid of the multiple taxation mechanism and cutting down on shady real estate deals.

Also, the anti-profiteering clause of the Input Tax Credit (ITC) that was added to GST requires the developer to give the benefits to the consumer at each stage of project completion. This lowers the prices of properties that are still being built.

Under-construction units

GST is expected to be a market booster for the real estate industry. It is expected to improve the mood of buyers and investors by making the tax system more clear and by lowering property prices by having builders pass on the benefits of Input Tax Credit (ITC) to the final consumer.

At first, properties that were still being built were taxed at 18 percent, which was made up of 9 percent SGST and 9 percent CGST. But because the government let manufacturers use ITC on the purchase of both raw materials (inputs) and the final product or service (outputs), the buyer only had to pay a tax rate of 12%. At the GST Council meeting on February 24, 2019, the GST rate on homes that are still being built was cut even further to 5% (minus ITC benefits), which is a huge boost for the real estate market.

In order to calculate Goods and service tax, the government has also permitted a deduction of land value equal to one-third of the total amount, which will help to lower property prices even more.

For example, if the total cost of a property is Rs. 80 lakh, the developer can charge up to Rs. 30 lakh for the land, and the GST will be calculated on the remaining Rs. 50 lakh. This reduces the huge tax burden on the developer, which will be passed on to the end consumer.

The most important thing to note is that stamp duty and registration costs would not be included in the GST. Stamp duty and registration fees of 5 percent and 1 percent are still paid on all properties (subject to State rules).

Ready-to-move units

Goods and service tax doesn’t apply to homes that are already set up for people to move in. So, the overall price of ready-to-move-in properties and properties for sale hasn’t changed since the GST.

Disclaimer: The opinions shown above are mainly for informational reasons and are based on market research. Deal Acres is not responsible for any actions made as a result of relying on the provided material and makes no representations as to its accuracy, completeness, or reliability.

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