The real estate market is an endless source of investment opportunities, and hundreds of people invest in residential homes each year in the hopes of making a profit. Previously, there were many tax regulations to consider, including stamp duty, VAT, service tax, and registration fees, all of which had varying rates for different states.
However, following the implementation of the GST, a slew of new uncertainties and questions arose, and investors and homebuyers now have some serious reservations about the GST’s applicability. We will address these concerns for all those who are currently involved in property-related transactions or who are going to purchase a property.
Also Read: Latest GST Reforms in India for Homebuyers
GST Myths
According to the GST, all residential properties are treated the same
The impact of GST on a property is determined by a number of criteria, including the project’s designation as affordable or non-affordable housing, building phase, project type (Residential Real Estate Project or Real Estate Project), and location.
To give an example, the GST law ignores one of the most crucial aspects in the real estate industry that determines price: location. It assumes a similar land cost of 1/3rd of the total value for all projects, regardless of location. If a person buys a property in Delhi and another person buys a house in a village in Uttar Pradesh, both will be subject to applicable GST based on 1/3rd of the land value. This is an issue. Furthermore, because of the lower tax rate on affordable housing, the impact on luxury housing will be less in comparison.
The GST Law on Real Estate has clear guidelines
This is far from the case, as virtually every state has its own set of real estate rules and regulations, making navigation incredibly complex. Individual agreements for the land supply and building percentage, as well as land taxability at one-third of the entire value, were required by the developer.
In the inverted duty structure, developers are ineligible for refunds because the inputs are assimilated at a greater rate than the lower tax rate on the output. Furthermore, when a project has numerous phases, the tax calculation is done differently. The use of ITC (Input Tax Credit) is a requirement for a lower tax rate.
However, there are regulations regarding the area sharing structure, and the landowner is entitled to ITC on the construction services provided by the developer; however, there was no clarification on the utilization, which was recently informed by a notification.
Also Read: Impact of GST on Rental Income
GST Does Not Apply to Plot Sales
When a completion certificate is granted or the first tenant enters a structure, the GST regulations eliminate the application of the tax on the sale of plots and even entire buildings. However, if even the tiniest amount of construction is done on a small land, GST will be charged.
While the application of GST to two-thirds of the value of land is excessive because the development on it will be significantly less valuable than the land, it has significant pressure on the person involved in the transaction.
Developers are unwilling to share any refundable funds with buyers
The remaining corpus fund after the transaction and process of the sales has been a source of consternation for developers, as the government has not yet clarified how the advantages of the sales can be passed on to the buyers. The real estate industry has a tough time estimating the transaction’s end impact, which is why developers are hesitant to pass on any ITC benefits in the short term.
The benefit that can be passed on from under-construction projects is similarly difficult to assess; nevertheless, the National Anti-Profiteering Authority does indicate some processes, which is also unclear at this time.
Read Also: GST on rental- Everything you should know!
The Affordable Housing Program is Inexpensive in Every Way
As per the rules, a total carpet area of not more than 60 square meters in metropolitan areas and 90 square meters in non-metro or small towns with a value of not more than INR 45 lakhs is considered affordable; however, there are dozens of other terms that are not easily understood by the general public.
Under Property Maintenance, Electricity and Water Fees are exempt from GST
Currently, apartment owners must pay 18% GST on maintenance expenses over INR 7500, and the housing society collecting the money must pay the same 18 percent. As a result, the circumstances are clear: INR 7500 will be taxed at 18%. To be clear, the tax applies to the entire amount, not just the portion that exceeds INR 7500. Because charging GST on multiple rates is often complicated, compliance must be settled quickly.
To summarize, there is a need to rationalize compliance-related operations, as well as additional simplifications and explanations, to achieve the ultimate goal of implementing GST as a good and straightforward tax. Assetmonk is a WealthTech platform that offers real estate investment options with an IRR of 14-21% in key cities like Bangalore, Hyderabad, and Chennai. To begin investing with us, go to our website.
