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GST Could Impact Residential Real Estate ! - Tollybeats

GST Could Impact Residential Real Estate !

Updated | April 8, 2017 23:33 IST

On Thursday, Parliament Of India has passed four bills to concrete the path for the roll-out of GST, which can be applied from 1st Julyonwards.

Interesting point, How it effects on the real estate? Home buyers have to pay  GST(Goods and Service Tax) for buying of under construction apartments, houses and all the additional costs collected by the originator including internal and external development charges and the location charges.

Usually, 15 percent service tax which is levied on commercial properties on rent will be replaced by GST from 1st July. No GST will be applied on the landowners who has been receiving rental income from a tenant for a residual unit. Besides, completed apartments will not be affected by GST.

MS Mani, Partner, Deloitte Haskins Sells LLP mentions the cost of the apartment will reduce or increase when GST comes into act offered the reduced tax scheme. He also explains government needs to clarify whether a lower rate of 12 percent will be applied in under-construction stage or a higher- rate of 18-percent on real estate.

As per the present-day service tax, those who buy an under construction flat will be allowed 75 %  of abatement, if the flat is less than 2.000 sq ft and sold for less than one crore, the effective tax rate from 15 to 4 percent.  Correspondingly, the cost of the flat price is above one crore and the size of the unit is more than 2,000 sq ft, the service tax is reduced to 70% and the effective tax rate bear by the buyer by 5 percent.  States also charge VAT over and above service tax. The cost of the residual unit will increase if the abatement rules are not included under the GST.

MS Mani also says the abatement of 15 percent service tax attracts to those who paid installments to the builder for an under-construction property. It will be impacted to the under construction stages at pre-booking stage. Around 1 percent of VAT is charging by the key states such as Haryana, Maharashtra, and Delhi of the contract value for under-constructional projects. These projects are liable to VAT and Service Tax. These taxes will not be applicable to the buyer as he holds the property for five years with complete registration. These comes under constructed properties. “The same will be true once GST comes into effect “, told by Harpreet Singh, Partner, Indirect Tax, KPMG in India.

Credai, Vice President, Rohit Raj Modi explains a developer who sells an under-construction property and receives consideration from a buyer is termed as works contract. It is not at all a transfer of property as per the court ruling. 5 percent service tax is paid by homebuyers on the entire sale value of apartment including BSP(base selling price), PLC(preferential location charge), parking, club membership etc. post offered for abatement.

Generally, builders choose a compounding scheme which they pay VAT at the rate of 1 percent to the concerned authorities, depend on the state. But they do not charge the same on customers or go in for an assessment scheme under which they produce records of purchases made during the construction process to the assessing authorities that charge them VAT on a notional profit of 10 percent.

Sales of Land, Buildings and Electricity has also been out of the GST ambit. They will continue to attract stamp duty levied by the States.  Based on the reports, the MHUPA( Ministry Of Housing and Urban Poverty Alleviation) has suggested the Finance Ministry continue the present-day service tax exemption on affordable housing under the GST regime. The decision on this is expected before July. Otherwise, it derails the Government’s  goal of Housing for all by 2022. This exemption is to be continued under the next tax regime. MHUPA also requested the State and territories to consider relinquishment or rationalization of stamp duty on affordable housing projects.

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