What are the GST rates for Builders and Developers?

Introduction  

The Goods and Services Tax (GST) has brought significant changes to various sectors in India, including the construction and real estate industry. In this article, we will discuss the implications of GST on builders and developers. We will explore the GST rates applicable to construction services, the impact on builders, and the implications for home buyers. Let’s dive in!

What is GST?

GST, or Goods and Services Tax, is a comprehensive indirect tax levied on the supply of goods and services in India. It has replaced a plethora of state and central taxes, making the tax system more transparent and efficient

What is GST on Construction?

Under the GST regime, construction services are considered a part of works contracts. The GST rate applicable to the construction of residential units in housing projects and other projects, excluding the value of land, is 12%. When a contract is subcontracted, the GST shall also be levied at 12%. However, the GST rates may vary depending on the type of apartment and the value of the land.

What are the GST Rates on Builders and Developers?

The GST rates applicable to builders and developers depend on the type of property being constructed.

• For residential apartments, the GST rate is 1% without Input Tax Credit (ITC) on the total consideration for affordable residential apartments and 5% without ITC on the total consideration for other than affordable residential apartments.

Please note: GST on flat purchases is not applicable if you buy a property in already completed projects.

• For commercial apartments such as shops, godowns, and offices, the GST rate is 18%. To avail of the above GST rates, builders and developers must ensure that at least 80% of the total value of inputs and input services are purchased from registered suppliers.

What is the impact of GST on builders and developers?

The following are the impacts of GST on builders and developers:

1. Input Tax Credit (ITC): Under GST, builders and developers can claim input tax credit on the taxes paid on goods and services used in the construction of a property. This has reduced the overall cost of construction and has made it easier for builders and developers to pass on the benefits to the buyers.

2. Increase in Compliance: The introduction of GST has increased the compliance burden on builders and developers. They are required to file monthly returns and maintain proper records of their transactions. This has increased the administrative costs for builders and developers.

3. Affordable Housing: The GST rates for affordable housing have been reduced from 8% to 1%. This has made it easier for builders and developers to construct affordable housing projects and has made it more affordable for buyers.

4. Under-Construction Properties: Under GST, the tax is levied on under-construction properties based on the percentage of completion. This has made it easier for buyers to understand the tax implications of buying an under-construction property.

5. Ready-to-Move Properties: The GST does not apply to ready-to-move properties as they are considered as completed properties. This has made it easier for buyers to purchase ready-to-move properties without worrying about the tax implications.

Who will pay GST: Builders or Buyers?

Both the builder and the buyer have their roles in the GST process. The builder collects it, and the buyer pays it as part of the property’s cost.

1. Builder’s Responsibility: Builders and developers are responsible for collecting GST from the buyer. They charge a certain percentage of the property’s value as GST, which is typically around 5% to 12% of the property’s cost, depending on the type and location of the property. Builders then pay this collected GST to the government.

2. Buyer’s Responsibility: As a buyer, it’s your responsibility to pay the GST amount to the builder as part of the property’s total cost. The builder, in turn, submits this GST to the government. So, while it may seem like you’re the one paying it, you’re essentially acting as a conduit to transfer the GST to the government.

Conclusion

The implementation of GST has brought significant changes to the real estate sector, particularly for builders and developers. The GST rates applicable to construction services and the purchase of properties have impacted the overall cost of construction and the prices of properties. Home buyers need to be aware of the GST implications before making a purchase decision.

Suggested Read: What is GST? Process to Download GST registration Certificate