GST or Goods and Services Tax is an indirect tax levied on all supply of goods and services in India. GST is applicable for supply of service related to construction of building. However, GST is not applicable on completed constructions. In this article, we look at the applicability of GST on Property Transactions in detail.
Applicability of GST
As per GST law, construction of a complex, building, civil structure intended for sale to a buyer is considered a service and liable for GST – if any consideration is received before issuance of completion certificate. However, GST is not applicable if the whole of the consideration for a property is paid after issuance of completion certificate by a competent authority or after its first occupancy, whichever is earlier.
Hence, if you are purchasing a property from a builder directly and if payments are made to the builder towards the property prior to occupation, GST would be payable on the amount paid. However, if a property is purchased in a secondary transaction from an owner, then GST would not be applicable as the payment is being made after issuance of completion certificate or first occupancy.
GST on Under Construction Property
The effective GST Rate applicable on purchase of under construction property – residential or commercial from a builder involving transfer of property in land or undivided share of land to the buyer, is 12% with full Input Tax Credit (ITC).
The GST rate payable on construction services is 18%. However, the effective rate paid on property transaction would be 12%, as GST at the rate of 18% is levied only on 2/3rd of the amount for the property; 1/3rd of the amount is deemed as value of land or undivided share of land supplied to the buyer and is not taxable under GST.
GST on Completed Flats
In case of purchase of completed flats in a secondary transaction, GST would not be applicable on the sale. GST is only applicable on payments made to a builder for providing the services of construction. Hence, in case of purchase of a completed or used flat, the question of providing construction service does not arise. Thus, there would be no GST applicable on purchase of completed flats.
A key criteria for determination of applicability of GST on a property is the issuance of completion certificate by the concerned authority. If completion certificate for a property is obtained before making any payment to the seller, GST will not be applicable as it is considered a ready-to-move-in property and there is no transfer or supply of goods or services.
Property Purchased Before GST
GST has been implemented in India from 1st July 2017. If all payment for a property under construction was paid before 1st July 2017, then no GST would be payable on such a property even if the construction is completed and the property is handed over after 1″ July, 2017.
However, this transaction would have attracted Service Tax at the rate of 4.5% because if the invoice was raised or payment made prior to the implementation date of GST, the point of taxation arose before the GST implementation day and the transaction attracts Service Tax and not GST.
However, if a builder raised GST Invoice or received payment from a buyer after 15 July, 2017, then GST would be applicable at the 12% rate. Further, from 1st July, 2017, the builder is eligible for availing full input tax credit (ITC) on goods and services for paying his output tax @ 12%.
GST on Apartments Purchased Under CLSS
The Credit Linked Subsidy Scheme is meant to provide affordable houses to the lower and weaker sections of the society. The maximum annual income for eligibility of beneficiaries under the scheme is up to Rs 18 lakh. The GST rates on such houses will be effectively 8% and not 12%.
Credit-Linked Subsidy Scheme (CLSS)
The property could be purchased under the schemes applicable to GST at the rate of 8% as follows:-
- Economically Weaker Sections (EWS)
- Lower Income Group (LIG)
- Middle Income Group-1 (MlG-1) or Middle Income Group-2 (MlG-2) under the Housing for All (Urban) Mission/Pradhan
- Mantri Awas Yojana (PMAY Urban)
Under section 171 of the CGST Act, any reduction in GST rate on supply of goods or services or the benefit of input tax credit should be passed on to the buyer by commensurate reduction in prices. In case a seller does not reduce prices after reduction of GST rates, the matter can be referred to the Anti Profiteering Authorities. Anti-profiteering Authorities have been set up to examine whether input tax credits availed by a registered person has actually resulted in a commensurate reduction in price of the goods or services supplied by him.