Taxability of Real Estate Transactions Under GST: Particulars Applicability Rate of Tax

2.
Taxability of Real Estate

Transactions under GST
Particulars Applicability Rate
of T
On ready-to-move (RTM) properties Not applicable – Because Sale of building is treated as activity –
for which completion certificates are or transaction which shall be treated neither as a supply of good
issued nor a supply of service as per SCHEDULE III of CGST
Act,2017
On Under Construction Properties Applicable as supply of services as per Schedule I of CGST Act, 8%*
(For Homes Purchased Under 2017
Credit-Linked Subsidy Scheme)
On Under Construction Properties Applicable as supply of services as per Schedule I of CGST Act, 12%
(Other than above) 2017
On resale properties Not applicable –
On Land purchase and sale Not applicable. As per Schedule III, sale of land is neither –
supply of goods nor services.
Works contract Applicable 18%
Composite supply of works Applicable 18%
contract
Composite supply of works Applicable 12%
Contract to Government Authorities
Composite supply of works contract Applicable 12%

– for use by general public
Composite supply of works contract Applicable 12%

– Affordable Housing
* NOTE: The homes purchased under the Credit-Linked Subsidy

Scheme (CLSS) attracts 12% GST rate. The applicable rate will be
8% after cutting the 1/3rd amount towards the cost of land.
3. Impact on Buyers
Under the earlier tax regime, buyers had to pay VAT, Service tax,
Registration charges & Stamp duty on purchase of properties under
construction. Also since VAT, Registration charges & Stamp duty
were state levies, prices of properties varied from state to state.
Moreover, developers had to pay various duties like sales tax
(CST), custom duty, OCTROI etc. for which credit was not available.
Under GST, a single tax rate of 12% is applicable on properties
under construction while GST is not applicable on completed or
ready to sale properties which was the case in previous law. Hence
buyers will benefit from reduction of prices under GST.
In the short-term, buyers may stick to “wait and watch” approach to
gain more understanding on the impact of GST on property prices
and defer buying decision.
Also, in the long term, GST will a positive impact on buyers if the
benefit of input tax credit received by the developer is passed on to
the buyer.
4. Impact on Developers /
Builders / Contractors
Under the previous tax regime, developers had to bear Excise duty,
VAT, Customs duty, Entry taxes etc. on raw materials / inputs and
Service tax on various input services like approval charges,
architect professional fees, labor charges, legal charges etc. ITC
was not available for duties like CST, Customs duty, Entry Tax etc.
This would impact the pricing and subsequently the burden was
transferred to the buyer.
Under GST, developers’ construction costs are significantly reduced
as multiple taxes are subsumed and due to the availability of input
tax credit. Also, reduction in cost of logistics will be an added
benefit. Hence developers may see improvement in margins.
On the downside, developers have to do multiple calculations to
arrive at ITC in order to pass it on to the buyers. Hence, in most
cases, they can pass on the ITC only during the final stages.
This lack of transparency on ITC, may affect the developers since
buyers may resort to “wait and watch” approach and defer buying
decision.
And, in the erstwhile laws, a large portion of expenditure remained
unrecorded in the books. Under GST, availability of credit on inputs
and cloud storage of invoicing has reduced under recording of
expenditure.
5. Impact on other Stakeholders

The impact on the allied services like labor, material suppliers,
service suppliers etc. depends on the increase or decrease in the
tax levied on these goods and services. This will have a
consequential impact on real estate industry as a whole.
For example, earlier cement was taxed at an effective rate of 27-31
percent which will now be taxed at 18 percent. Increase in cement
prices will result in consequential increase in the overall cost of
construction.
GST Rates for some of the goods relating to the construction
industry are given below:
Product Rate of GST
Sand 5%
Sand & Fly ash Bricks 12%
Steel 18%
Paints 18%
Marble and granite 28%
Cement 18%
6. Reverse Charge Mechanism

(RCM) & its Impact
The concept of RCM has been borrowed from the erstwhile Service
tax law. The scope of RCM has significantly expanded in GST
which may adversely impact the developers.
 One of the significant additions to RCM under the GST law is,
if goods are procured / service are received from a person who
is not registered under GST, a registered person under the
GST has to pay GST on all such supplies.
 In cases where services are received from goods transporters,

legal services received from an individual or firm, services
received from the government or local authorities, like
municipalities, etc. (subject to exceptions), developer has to
pay the GST on the same.
 Also, under GST, the developer cannot adjust the tax payable
under RCM against the input credit available from the GST
paid on the inputs. Instead, it has to be paid by cash/bank
payment.
This will increase the costs and has a negative impact on the
developers, especially the small developers.

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2.

Taxability of Real Estate

On resale properties Not applicable –

Works contract Applicable 18%

Composite supply of works Applicable 18%

Composite supply of works contract Applicable 12%

Composite supply of works contract Applicable 12%

* NOTE: The homes purchased under the Credit-Linked Subsidy

5. Impact on other Stakeholders

Product Rate of GST

Sand & Fly ash Bricks 12%

Marble and granite 28%

6. Reverse Charge Mechanism

 In cases where services are received from goods transporters,

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