How Shall New Residential Property Purchase Be Taxed Under GST?

Posted By:
Subscribe to GoodReturns
For Quick Alerts
Subscribe Now  
For Quick Alerts
For Daily Alerts

    The real estate sector like other sectors is not immune to the effect of the biggest tax reform, GST and the recently provided list of services that are exempt under Goods and Services Tax includes renting of residential buildings for residential purpose. This implies that the rental income accruing from renting residential property shall be exempted under the new GST framework.

    How Shall New Residential Property Purchase  Be Taxed Under GST?

    The service is also exempt under the current service tax legislation i.e the service of renting residential premises for residing does not attracts service in the hands of the service provider.

    So, how would the changing indirect taxes scenario under GST will effect residential real estate?

    Residential property when purchased attracts a service tax depending on the cost of such purchase. For a flat valued over Rs. 1 crore, the rate is kept at 4.5% while for a flat with a cost of upto Rs. 1 crore, 3.75% of the value of the flat is payable as service tax.

    Some states including Maharashtra also levy 1% VAT on purchase of flat.

    But, with the implementation of GST, 12% tax rate shall apply on the purchase of a residential property. 12% GST rate which includes 6% Central GST and 6% State GST.

    So, GST shall bring an additional tax burden of a maximum of 7.25% for a flat costing upto Rs. 1 crore with the new GST rate of 12%. While the existing tax rate calls for 3.75% service tax (for property valued upto Rs. 1 crore) and 1% as VAT (depending on the state's legislation for VAT).

    With it the total cost of the residential flat for the buyer shall increase which shall have a direct bearing on the rental charges.

    However, it should be noted that with GST, credits shall increase by 2 to 2.5% of the cost of the property in a city like Mumbai as then the developers will be able to avail all the credits on procurements which currently faces several restrictions.

    Read more about: gst tax real estate
    Story first published: Thursday, June 15, 2017, 16:33 [IST]
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    Get Latest News alerts from Goodreturns

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more