This has brought a lot of sanity and consistency to Indian taxation through the Goods and Services Tax (GST). Nevertheless, the issue of whether GST is applicable to the sale of land is one of the most controversial issues. The question many property buyers and sellers tend to ask themselves is: Is GST applicable in land sales? Or “What are the GST rules of land and real estate?
This blog will cover the GST implications for selling land in India, including legal provisions, exceptions, government notifications, and the impact of GST on land-related transactions.
Understanding GST
Goods and Services Tax (GST) is a broad-based type of indirect tax levied on the supply of goods and services in India. It has replaced several taxes, including VAT, excise duty, and service tax, creating a single tax system.
GST applies to virtually any type of supply, with the exception of supplies that are explicitly exempted or are simply not subject to it in the law. The sale of land is one such area that was regarded as neither a supply of goods nor a supply of services, as stated in the GST Act.
Does GST Apply to Sale of Land?
Under Schedule III of the Central Goods and Services Tax (CGST) Act, 2017, the sale of land and the sale of a building (after a completion certificate) are not considered as a supply of goods or a supply of services.
This implies that no GST is charged on the sale of land in India. The sale is deemed to be pure of immovable property and thus it is not subject to GST.
However, some related transactions, such as under-construction property sales or land development, can also be subject to GST under specific conditions.
Legal Provision: Part III of the CGST Act
Not included under GST as supply: According to Schedule III, Clause 5, the following are not meant to be held as supply:
- Sale of land.
- Sale of the building following the grant of a completion certificate or following the first occupation.
Therefore, the sale or transfer of developed or undeveloped land after transfer of ownership does not fall under GST.
GST on Sale of Under Construction Property
A completed building or land cannot bear any GST, but an under-construction property is subject to GST since an under-construction property is considered a supply of services.
GST Rates applicable to Under-Construction Property
- GST on low-cost housing development projects is 1percent (without Input Tax Credit).
- 5 per cent GST on non-affordable housing projects (no Input Tax Credit).
In case the building has not obtained a completion certificate or occupancy certificate, then the sale of such property will be charged GST under the category of construction services.
GST on Developed Land or Land Development Services
Even though the sale of bare land is not subject to GST, developed land, where infrastructure (roads, drainage or electricity) is included, may be subject to GST.
Land Development when GST Applies
- Where the developer or the contractor offers the services of land development (plotting, laying roads, sewage, or fencing).
- Under a Joint Development Agreement (JDA), a landowner sells his land to a builder in exchange for a portion of the developed property.
Whenever this happens, GST is taken on the service component given by the developer or builder rather than the land value itself.
GST on Joint Development Agreements
A Joint Development Agreement (JDA) entails coordination between a developer and a landowner in which a developer erects constructions on the land and divides a part of the developed property with the landowner.
The GST liability in such transactions is as follows:
- The developer will have to pay GST on the provision of construction services to the landowner.
- The owner of the land is not liable to pay GST on the transfer of development rights for the land.
- GST payment will be made subject to the issuance of a completion or occupancy certificate.
In this way, the land is not subject to taxation, but the service aspect of the development is subject to GST tax.
Registration Charges and Stamp Duty
Although GST does not apply when the land is sold, customers must pay Stamp Duty and Registration Fees according to state regulations. These are independent of GST and are imposed in the form of a percentage on the market value of the property.
In most cases, stamp duty is between 5-7 per cent, and the registration fee is approximately 1 per cent of the value of the property, depending on the state.
GST on Sale of Plots having Basic Infrastructure
When a developer disposes of the plotted land, including facility developments such as roads, drainage, and streetlights, or even parks, GST can be imposed on the development charges portion, rather than the value of the land.
To take the example, a builder offers a plot valued at Rs. 20 lakhs and charges Rs. 2 lakhs for development services; GST will only be applicable to the Rs. 2 lakh service.
GST and Real Estate Developers
The implication of the GST should be very much known to the developers who are also involved in the construction and even sale of property:
- Sale of under-construction units attracts GST.
- The sale of completed property or land is not subject to GST.
- The residential projects are sold at 1% or 5% GST, and no input tax credit (ITC) is applicable.
- The developers were required to make valid tax invoices of any portion of the transaction that was liable to taxation.
Conclusion
In India, the GST does not apply to the sale of land, either, as this is not a supply of goods or services under the GST. Still, the GST can also apply to under-construction property, land development and joint development agreements, depending on the nature of the transaction.
The buyers want to be convinced that the property has been issued a completion certificate before purchasing the property. It should also be noted that, to the developers, it is necessary to comply with the GST rules and documents in order to facilitate easy transactions and avoid fines.
Understanding the GST implications in land and property deals would also help buyers and sellers develop better plans, reduce the costs involved, and comply with Indian tax laws.
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