Goods and Services Tax or GST a combination of all kinds of indirect taxes under one comprehensive tax. There are four different tax slabs in GST – 5%, 12%, 18% and 28% of daily consumable items have been kept under 5% tax slab while the luxury items will attract 28% GST. Everything in between will be taxed at either 12% or 18%. Now, before we get into the effect of GST, let us understand how real estate is taxed in the current tax regime.
Real Estate Sector is the most pivotal sector of Indian economy. Its importance can be understood with its average 5-6% GDP contribution. The Goods and Services Tax (GST) Council has defined the work contracts under 12 % slab, whereas the ready to move in properties still remain out of the new tax system. GST would bring transparency in the real estate sector and would minimize unscrupulous transactions. GST for the sale of buildings and land has not yet been fixed but is to be done within a period of 1 year. The rates declared for cement, bricks and iron under GST would benefit the real estate taxation.
Cement will be taxed at the rate of 28% under It is higher than the current average rate of tax by 23-24%, but a lot of additional taxes charged over the average rate would be subsumed under Iron rods and pillars used in the construction of buildings are charged at the rate of 18 is similar to the current average rate of 19.5%. Bricks used in the construction of buildings and houses are taxed under GST at the rate of 28 for the rate of ceramic building bricks which is kept under 5%. Currently, all kinds of bricks except the ceramic ones are charged an average tax rate of 25-26 all the state as well as central level taxes. Also, the logistics cost of construction materials will experience a reduction through the subsuming of taxes. Despite higher rates, the sector is likely to benefit from the availability of input tax credit. As under the current tax regime, the benefit of input tax paid is not fully available, the benefits arising out of input tax credit on the raw-materials available under the GST regime would result in an overall neutral tax incidence for construction services.
Under GST, of construction contracts fall under work contracts. The service tax applicable to construction companies is generally 6 40 percent service of the contract. Although many activities like construction of roads, dams, and irrigation are exempted from service tax and VAT payable and are applicable the supply the contract.
Also Read: What is GST?
The current tax structure of the residential property have to pay both service tax (ST) and value-added tax (VAT) on the possession of the under-construction property. builder to builder and state to state. The service of 15 %, builder on this get subsidy on land and other services. the service tax only 4.5 % the sale value. Vat is applicable on the sale of the property, this as well varies between 3% and 5%, depending on the state. The average VAT is 4.5% of the sale value. The total tax goes around 9% on the sale of the property in the current tax regime. There is no service tax or VAT on the ready move in property.
Under GST, the sale of under-construction real estate properties would be defined under the supply of services and would be liable to pay GST. The GST Council has fixed the rate of 12 percent work contracts. In the current GST, the ready to move in properties and lands from GST just like the contemporary tax regime.
Although now a home buyer would be confused thinking that the current tax regime says only 9 % tax on under-construction property and GST has fixed rate of 12% then how will GST benefit a home buyer?. As per clause 171 of the GST bill, It is mandatory to pass on the input credit benefits due to the reduction in the rate of tax or from an input tax credit to the consumer by way of in prices.
It is expected that the impact of GST on real estate prices will be neutral and positive in the long run under GST will bring substantial benefits in the real estate sector, as it is supposed to raise transparency and accountability in the entire process of buying and selling properties.