Back in February, the GST (Goods and Service Tax) council announced a relief on GST rates applicable on under-construction houses.
With effect from 1 April 2019, GST on affordable houses were reduced from 8 percent to 1 percent and tax on other houses were lowered from 12 percent to 5 percent. The decision was made to promote the government's 'housing-for-all' policy further.
This change is expected to reduce a buyer's payout by 4 to 6 percent.
If you are looking to buy or have recently purchased a house or a commercial space in a residential project, here are 4 things you should know about the GST implications on these projects.
- The new and lower tax rates are applicable on housing projects launched after 1 April 2019.
- The tax rates are applicable on the flat's price.
- A builder cannot claim rebate on the taxes paid on raw materials and services used in the construction of the building under the new GST regime.
- On the houses that were under construction as on 31 March, builders have the choice to keep the earlier GST rates (in order to get the benefit of input tax credits) or chose the new rates without the benefit.
- A house or property is considered under-construction as on 31 March, if it was not issued a completion certificate or if the first occupation of the house was not made before 31 March.
- Under the housing-for-all or Pradhan Mantri Awas Yojana scheme, flats priced below Rs 45 lakh are considered as 'affordable houses'.
- The carpet area limit on these houses are limited to 650 sq. ft. in metro cities and 960 sq. ft. in non-metro cities. The government sees the carpet area limit to roughly mean 2 BHK in metros and 3 BHK in non-metro cities.
- The definition does not consider the built-up area or the super built-up area, but the carpet area.
- Metro cities would include the Mumbai Metropolitan Region, National Capital Region (Delhi), Bengaluru, Kolkata, Hyderabad, and Chennai.
- The new GST rate on under-construction 'affordable houses' is 1 percent.
Partial pending payments
If a buyer made the purchase before 31 March but has a portion of payment left to be made after March, the new GST rate shall be applicable, unless, the builder has opted to stick to the earlier tax rate wherein they can pass on the tax rebate benefit to the consumer.
- After the new GST revision, shops and offices within the residential real estate project will be taxed at 5 percent without input tax credit.
- The rate applies on properties in projects launched after 1 April as well as ongoing projects as on the cut-off date, where the builder may have opted for new rates.
- The builder can opt for the old GST rate of 12 percent which comes with input tax credit benefit.
- The rates are applicable on shops and offices within a residential real estate project, wherein the carpet area of commercial apartments is not more than 15 percent of the total carpet area of all the apartments in the project.