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Posted on June 18, 2021
GST on registration of property in India
Goods and Services Tax (GST) came into effect in July 2017 and it has been a game-changer across all sectors of our economy, Real Estate being one of the larger sectors. Meant to do away with the multiple taxes like VAT, Service tax and others, it has indeed aided the process of building a more simplified and robust tax system.
Real estate is one of the most important sectors that accounts for 6-8% of its GDP. With implementation of GST registration, the country stands to witness some significant changes in this sector.
With major relaxations in some very competitive segments of the real estate market, like the registration of property, these segments saw a spike in investments while others remained relatively stable. The impact of GST on real estate has been phenomenal.
Registration of property which used to be taxed at the rate of 12% is now taxed at the rate of 5% and real estate giants believe that this compilation of taxes into a single unit has indeed helped boost the sector and accelerate growth.
Although taxes such as Stamp Duty and Registration charges, and those associated with construction materials remain separate, GST still helps to bring together a composite system of taxing with some lucrative perks in this sector. Thereby, boosting investments in this sector, particularly in the Rental Markets, especially in the case of properties rented for residential purposes.
The Impact of Changes in GST on registration of property
In February of 2019, the new GST rates were introduced for residential properties and it came into effect in April 2019. The Council abolished the ITC benefits and offered a transition plan to the developers. The new GST registration threshold limit for services prevalent in the real estate sector are:
-> GST on under-construction properties – 5% without ITC benefits
-> GST on affordable houses (within Rs. 45 lakh) – 1% without ITC benefits
-> GST on commercial properties – 12% with ITC benefits
With the redefinition of affordable housing unit, properties were divided into three categories:
-> Properties with the total carpet area not exceeding 60 sq m in metropolitan areas including Delhi NCR, Kolkata, Chennai, Hyderabad, Bangalore and Mumbai Metropolitan Region .
-> Properties with the total carpet area not exceeding 90 sq m in non-metropolitan cities and towns.
-> Properties priced within Rs 45 lakh in either metropolitan or non-metropolitan areas.
The Key Impacts of GST on registration of property
- There was a steady increase in interest towards completed properties as compared to those in construction. As completed properties that possessed a certificate were completely exempted from tax while under-construction units were placed in the 5% tax segment.
- With the presence of other taxes associated with materials used for construction the cost of overall construction increased and hence, this segment saw fewer investments from buyers.
- Another aspect that affected the interest of buyers was the delays associated with under-construction units and the developers filing for insolvency.
- With the removal of ITC benefits and exemption of Stamp Duty and Registration charges, the overall price of property didn’t undergo a substantial change in terms of pricing.
- With the introduction of GST and its modifications, transparency and accountability in the real estate sector have increased.