In India, whenever we buy something we have to pay Goods and Services Tax (GST). It is also applicable in the real estate industry. A home buyer has to pay GST during buying a property. So it is obvious that it has a lot of impact on the buyers and the real estate agents as well. In this blog, the ratio of GST, different conditions, and their impact on the industry will be discussed.
What is GST and why is it important? Gst in Real estate :
India is a large & diverse country. There are many socioeconomic factors that impact the economy. So it is important for India to introduce a simplified taxation system.
Complex systems always demotivate the users and increase the time in the system. So it was the need of the hour for India to make a simplified tax system. So the government of India introduced the Goods and Services Tax (GST) in the year 2017 on 1st July.
This new taxation system deleted many taxes such as excise duty, services tax, customs duty, surcharges, State-level Value Added Tax (VAT), and Octroi. This helped in reducing the complexity of the system and helped in making a uniform taxation system in India.
What is the rate of GST on the flats? Gst in Real estate :
In the new rule, you have to pay 12% GST during buying the home if you are choosing an under-construction property. At the same time, if you are buying the property in a ready-to-move property or fully completed project then you do not need to pay this GST at all. Additionally, it is also important to mention that if you are buying flats, apartments, and bungalows which come under affordable housing (properties with specified price brackets and carpet areas) then you have to pay just 1% of the GST while for the non-affordable ones you have to pay 5% GST. If you are buying a flat from Realtech Nirman then you do not need to worry about the GST. Realtech Nirman will help you to understand this.
In this topic, it is important to mention that buyers prefer Gst on the under-construction property more than the fully completed project. In under-construction properties, buyers have the freedom of changing the design or pattern or they can increase or decrease the room size according to their needs. However, it is not possible once the project is fully completed.
What is the GST rate on construction materials? Gst in Real estate :
We have to pay GST on every purchase and the construction materials are not out of this. As these costs also include in the price so we have to consider these factors as well.
The GST rate on construction services is 18%. However, this rate varies in the construction sector as for affordable housing; it is 1%. The input service and construction materials rate is 18%, while other segments have 5% while the GST rate on construction services ranges from 8% – 10%.
The GST tax on the construction business is calculated on the basis of the whole expenditure of the process. For example, in construction work, you will need sand, cement, etc and you will need laborers as well. So on the sum of labor charges and the prices of construction materials, the GST will be charged. However, you will need a lot of materials for construction and the GST charge is different for every material.
What are the different charges for construction materials? Gst in Real estate :
1. Cement: There are many types of cement such as aluminous, slag, portland, hydraulic, or super sulfate types of cement and the GST charge is the same for every kind of cement. The GST charge is 18%.
2. Sand: Just like the cement there are various types of sand as well. The types are tar sand, oil shale or bituminous, asphalt, asphaltic rocks, natural asphaltites, bitumen etc and the GST charge is 18% for these all. However, if you are using natural sand for the construction business then the charge will be 5% only.
3. You will need pebbles, crushed stones and gravel for the construction and the GST charge for these all is 5%
4. Bricks: Bricks also has many types under it and the GST charge differs. If you are using building bricks, fly ash, siliceous, or other fossil-made bricks for the construction then the charge will be 12% while for the refractory bricks or bricks of pressed or molded glass, the GST charge will be 18%.
5. You will need tiles and ceramic goods for the construction and the GST charge is 18%. However, this charge will increase to 28% if you are using glass-based blocks used for paving, concrete or artificial bricks can reach up to 28%.
6. Marble & granites are one of the most important materials for construction and if you are using the blocks of marble and granites, the charge will be 12%. However, if you go for the marble & granites which are not in the shape of blocks the GST charge will be 28%.
7. The GST charge on basalt, sandstone, porphyry, and other sandstones is 5%.
8. The GST charge on iron & steel products is 18% and it includes all the types such as blocks, rods, or wares.
9. You will need tiles (Earthen, roofing) for construction and the GST charge is 5%.
10. The GST charge on wall tiles is 28%.
11. You have to pay an 18% GST charge for bamboo floor tiles.
12. The GST charge on artificial stone, cement, and concrete tiles is 28%.
13. The GST charge on copper wires is 28%
14. You have to pay a 28% GST charge for Paint and varnish.
15. The GST charge for pipe fittings is 18%
16. The GST charge for ceramic sinks and bathroom fittings and wallpapers is 28%
17. The GST charge for locks is 18% and for base metal mountings and fittings it is 28%
How is it impacted on the buyers? Gst in Real estate :
A business is for the buyers and it is important to pay attention to the convenience of the buyers. In the traditional taxation system, the buyer had to pay taxes such as VAT, Service tax, Registration charges & Stamp duty on the purchase of properties under construction. Well, these are not all, there were more taxes such as VAT, Registration charges & Stamp duty that were state levied. So the price of the property varied in different states and there was no uniform system at all. The builder had to pay taxes such as sales tax (CST), custom duty, OCTROI etc.
However, under GST the individual has to pay 12% GST if they are buying an under-construction flat. It is not applicable to projects which are completed already. So it is saving a huge money for the buyers and increases convenience as well.
How is it impacted the builders? Gst in Real estate:
In the previous taxation system, the builder had to pay taxes such as excise duty, VAT, Customs duty, Entry taxes, etc. on raw materials/inputs, and Service tax on various input services like approval charges, architect professional fees, labor charges, legal charges, etc.
Input Tax Credit (ITC) was not available for the taxes such as CST, Customs duty, Entry Tax, etc. These taxes increased the price of the p[roperty eventually and was creating a financial burden on the buyers.
In the current scenario, there are no different taxes and ITC is available. So it has reduced the cost significantly. In a nutshell, it can be stated that GST has increased the convenience of teh builders as well and it has reduced the price range which is helping in attracting more buyers. In this topic, it is important to mention that in the previous taxation system, there were many unrecorded transactions in the system which were reducing the transparency of the system. However, in this new taxation system credit on inputs and cloud storage of invoicing is helping increase the transparency in the system.
Some common FAQs, Gst on Flat Purches
1. How many types of GST are available in the market?
There are many types of GST in the market. One is CGST which is Central Goods and Service Tax (CGST), another is State Goods and Services Tax which is known as SGST. Well, in the case of union territories, it is Union Territory Goods and Services Tax or UTGST. Apart from these, we have Integrated Goods and Services Tax which is also known as IGST.
2. Who pays GST?
GST pays by both buyers and builders.
3. What type of property is considered residential property?
Residential properties are those properties that do not have commercial space with a carpet area of more than 15% of the cumulative carpet area in every apartment of the project.
4. If I rent out my flat, do I need to pay GST?
If you have a residential property and you are renting it out for residential purposes then it will not attract any kind of GST. however, if you are renting it out for commercial purposes then you have to pay 18% GST because it will be considered as a supply of service.
5. Is GST helping us as a buyer?
Yes, in the previous taxation system, an individual had to pay various kinds of taxes such as VAT, Service tax, Registration charges & Stamp duty and all these taxes were state levied. So the prices of properties varied. However, GST has simplified it and now you are just paying one tax at a time.
Final words: GST has reduced the prices of the properties and it has increased the convince for buyers and builders. All you need to do is to make some research work on GST to understand this easily.
