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Top 10 facts about new reduced taxes in Real Estate industry

Top 10 facts about new reduced taxes in Real Estate industry

Top 10 facts about new reduced taxes in Real Estate industry


  1. New GST applicable from 1st April 2019

At the 33rd GST Council Meeting held on 24th February 2019, new GST rates have been introduced for residential real estate which will come into effect from the 1st of April 2019. The new GST rates on residential real estate transactions have been proposed as follows:

GST to be charged at 5% without Input Tax Credit (ITC) on residential properties that are not part of the affordable housing segment.

GST to be charged at 1% without ITC on residential properties that are included in the affordable housing segment.


  1. Simple claiming conditions of Input Tax Credit in Real Estate

Subsequent to introduction of GST in real estate, as per GST Act rules input tax credit (ITC) equal to total tax paid may be claimed by real estate developers in the following cases:

The claimant can produce a debit note/purchase invoice/tax invoice as proof of GST being deducted.

The goods/services (or both) have already been received by the claimant.

The ITC claimant has not used the goods/services (or both) received for personal use.

All taxes that were due has been paid to the government by the supplier.

A valid GST return has been filed by the ITC claimant.


  1. More protection to buyer’s interest

The problem of ITC benefits not getting passed to property buyers is eliminated.
Hence, interest of buyers gets protected.

  1. Restrictions on Input Tax Credits (ITC)

Input tax credit is not available on supplies received for construction of an immovable property on his own account other than plant and machinery

NOTE: The word “construction” includes reconstruction, renovation, additions or alterations or repairs to the extent of capitalization to the said immovable property.

Example 1: If the cost incurred for the change of interiors of service apartment is added to the cost of immovable property (in this case, service apartment) then it forms part of the cost of Service apartment (immovable property) and accordingly input tax credit is not available for the taxes paid on change of interiors of service apartment.

Example 2: ABC Developers constructs a building for its branch office. In this case, ITC is not available.

Example 3: L&T constructs a hydraulic machine used for the construction of its branch office. In this case, ITC is available.


  1. GST-free Construction-related transaction/activities

GST is not applicable to the following construction-related transactions/activities:

  • Sale of ready to move in flats
  • Resale of property
  • Sale/purchase of land

In all the above cases, the sale-purchase activity does not include the supply of goods or services as per the GST Act, hence no GST is applicable to these transactions


  1. No GST on completed projects

Clarifying that units that have received a completion certificate do not attract any GST (goods and services tax), the finance ministry on December 8 asked real estate developers to pass on the benefits they get in the form of input tax credit to homebuyers.

“It is brought to the notice of buyers of constructed property that there is no GST on sale of complex/ building and ready to move in flats where sale takes place after issue of completion certificate by the competent authority,” the ministry said in a statement.


  1. New definition of affordable housing

The new GST rules have reduced the headline rate to 1 per cent from 8 per cent (with input tax credit) for affordable housing. However, the definition of affordable housing now allows apartments of 60 sq m for metro cities and 90 sq m for non-metro cities, with a cap on the value of the asset at Rs 45 lakhs. A lot of small-sized apartments in metro cities may not be within the Rs 45-lakh limit and therefore, may not enjoy the lower GST under affordable housing. Apartments in other cities and those in the outskirts of metros, with ticket size up to Rs 45 lakhs will be the key beneficiaries, depending on the price point and construction cost.

  1. A big relief to landlords

Those who are earning a rental income by letting out their properties for residential use will not be taxed under the GST. However, those who have given their premises on rent to be used for commercial or industrial purposes will have to pay an 18 per cent tax in case they are earning over Rs 20 lakh annually.

  1. More demand of Residential /Commercial properties

After considering multiple benefits of revised GST structure, there is huge potential growth in real estate investment. According to real estate expert a 190% to 250% growth in demand of Residential / Commercial properties can be expected in year 2019.

  1. Impact on Home loans

The implementation of the GST will bring some tax savings for the lenders, as the input credit with respect to the services availed, as well as goods purchased, will be available for set off, against the GST output taxes liability. However, the reverse charge mechanism, which is borrowed from the service tax regime and which is expanded under the GST, will adversely affect the profitability of banks. Moreover, lenders are now required to register in all the state under the GST, whereas, under the service tax regime, they could have obtained one centralized registration. This will significantly increase the compliance costs of the lenders and affect their profitability.


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