How To Avoid Gst On Under-Construction Property?

How To Avoid Gst On Under-Construction Property
In the real estate industry, the GST rate has changed dramatically. Many buyers are perplexed by the GST’s application to real estate. However, the GST Council has published guidance on the application of the GST on under-construction property and ready-to-move buildings.

  1. For any property buy and sell legal queries check NoBroker legal assistance service Let’s take a quick look at the new GST rate for under-construction and ready-to-move properties.
  2. Is the GST rate applicable to properties that are ready to move in? There will be no service portion in the transfer of a completed property to the buyer.

As a result, GST will not be applicable in such sales. So, if you acquire a ready-to-move property, you may be able to avoid paying GST. Is the GST rate applicable to properties that are still under construction? The proposed new GST rate for under-construction properties will be as follows:

It is termed ready-to-move-in property if the builder received the completion certificate before you purchased it. As a result, there is no GST on such assets. In such transactions, GST is payable by the buyer if you paid the whole cost of the property after the GST implementation, i.e. on July 1, 2017.

The GST rate for under-construction property or ready-to-move-in flats if a completion certificate is not granted at the time of sale is currently 12% with full Input Tax Credit (ITC). The current tax rate for affordable housing is 8%. How to avoid GST on under construction property? While the GST on under-construction flats has slowed sales, some developers have discovered a way around it.

They show the deposit as a loan from the buyer to a subsidiary firm, and once the building is completed and an occupation certificate is secured, the builder returns the deposit to the buyer with interest. This works because GST is not charged on completed projects with OC, but it is charged at a rate of 12% on under construction projects, while buyers in the cheap housing segment (homes with carpet areas of up to 60 sqm) pay 8% GST.

This concludes my answer regarding GST on under construction property.

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Contents

What is the GST rate for under construction property?

What is GST for under construction property? With GST rate cut on under – construction properties, the GST for under – construction affordable housing units is 1%, while for non-affordable projects it is 5%, without input tax credit.

Is GST applicable to under-construction and ready to move properties?

GST On Real Estate: 5% on Under Construction & 1% on Affordable Housing Published on 30 Dec 2020 228K Views GST Council has approved the proposal of 5 percent tax on residential properties and 1 percent for affordable housing. These taxes are valid from 1st April 2019.

There is a huge change in the GST rate in the real estate sector. Many buyers have confusion about the applicability of GST for real estate. However, recently the GST Council has issued a clarification regarding the applicability of Goods and Services Tax (GST) on the under-construction and ready to move and other states.

Let us understand in brief about the new GST rate on under-construction property and ready to move properties.

How GST will affect the real estate industry?

What is input tax credit (ITC) under GST? – A unique characteristic of the GST law is its ITC system, which makes it different from the previous tax system in India. From the start of a housing project, till its completion, a real estate developer pays tax multiple times on the purchase of goods and services.

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What taxes do real estate developers have to pay before GST?

Taxes before GST implementation – Before a single tax in the form of the GST was introduced in 2017, a variety of state and central taxes were imposed on buildings, through the various stages a housing project’s construction cycle. While these taxes increased the cost of project development for developers, no credit against this tax was available to the builders against the output liability.

Some of the taxes that real estate developers had to pay before the GST came into force included: Value Added Tax (VAT) Central Excise Entry Tax LBT Octroi Service Tax, etc. The cost incurred on these taxes by builders was, then, transferred to the property buyer. Moreover, the complexity involving rate applicability of the numerous taxes also made it possible for developers to manipulate numbers to charge more from buyers.

For a common buyer, it used to be an uphill task to find out the VAT, Central Excise, Entry Tax, LBT, Octroi and Service Tax rate applicable on property construction.