GST on under construction Property
2 years ago
I bought a property in April 2018 for 1.75 Cr inclusive of 12% GST from the builder. In 2019 April, government revised GST to 5%. Builder initially said that he would review the tax angle. Either he would reduce it to 5% or if he chooses 12%, then would provide some rebate due to input tax credits.
Now as the property is nearing completion and I am making final payments, the builder says that my 2018 purchase price already factored GST changes and it stays at 12%. How is that possible? I guess builder is not passing price benefit of 7-8 lakhs on the overall price.
Can someone help here?
A.Dear Sir,
With GST rate cut on under-construction properties, the GST for under-construction affordable housing units is 1%, while for non-affordable projects it is 5%, without input tax credit.
GST Council has approved the proposal of 5 percent tax on residential properties and 1 percent for affordable housing. These taxes are valid from 1st April 2019.
There is a huge change in the GST rate in the real estate sector. Many buyers have confusion about the applicability of GST for real estate. However, recently the GST Council has issued a clarification regarding the applicability of Goods and Services Tax (GST) on the under-construction and ready to move properties in Hyderabad and other states.
Let us understand in brief about the new GST rate on under-construction property and ready to move properties.
Is GST Rate Applicable On Ready-To-Move-In Properties?
Transfer of completed property will not have any service part to the buyer. Hence, GST will not be applicable in such sale transactions. So, if you buy a ready to move property, then you may save the GST cost.
Is GST Rate Applicable On Under Construction Properties?
The proposed new GST rate on under-construction property will be classified as below.
If the builder got the completion certificate before you purchase it, then it is considered as ready-to-move-in property. Therefore, no GST on such properties.
If you paid the full amount of property after the GST implementation, i.e. 1st July 2017, in such transactions GST is payable by the buyer.
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By proposing a modification to the GST Law in Finance Bill 2021, the government has suggested that interest on net tax due with the retrospective effect would be legalized. The net GST liability may be calculated by deducting the input tax credit from the gross GST liability. There will be no need to seek a rate of 12 percent because the GST has a retroactive impact. You can make a legal request.
Thank you.
Ayantika Mondal @ Prime Legal
Responded 2 years ago
The government has indicated that interest on net tax liability with retrospective effect would be legalised by proposing a change to the GST Law in Finance Bill 2021. After subtracting the input tax credit from the gross GST liability, the net GST liability may be determined. Since the GST has a retrospective effect thereby there will be no reason to seek for a rate of 12%. You can ask a lawyer to draft a notice regarding this issue.
Thank you.
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