GST Impact on Homebuyers, 9 things to know about GST
GST Impact: The key aspect of the new law GST is to be able to distinguish between what is happening today and what will happen in the future.
Here is a list of new concepts that one should know, if they want to invest in real estate. So, when you land on the property market you know how the taxation machinery works.
Dual GST Implied
As far as taxation is concerned, there is dual GST which means, for whatever the goods and services that you buy the two governments are going to levy the tax, IGST in which central and state component have been rolled out into one tax.
There are number of taxes that will be discontinued. From a Union Government’s perspective, the central excise, service tax, the two portions of the customs duty will disappear and merge into GST. From State’s, the VAT (Value Added Tax), entry tax, octroi, purchase tax and the various cesses and surcharges will all be subsumed into the GST.
From the real estate point of view, stamp duty, which is a state levy, stays. Basic customs duty will continue to apply the way it is applied today. A cess that applies on customs at the rate of 3% also stays. GST would apply to under-construction properties at 18% (effective rate 12%).
According to GST Act if a person whose annual turnover is below Rs 20 lakh may or may not get registered under GST or pay GST. If a gud is purchased from an unregistered vendor then the recipient will have to pay the GST on his behalf. For instance, if a developer buys river sand from an unorganized player who is not registered and not charging GST, then the developer will have to pay tax on his behalf and then take a credit on the GST paid.
Reverse Charge Mechanism
If a person transacts with an unregistered dealer, he will have to pay the tax within 30 days under the reverse charge mechanism. For a certain set of services one will have to pay GST and later claim credit on it.
Input Tax Credit, GST Impact
In the context of real estate, GST which is charged by contractors on construction of a house is going to be credited against the GST charge on sale. Under GST there is a composition scheme restricted to Rs 75 lakh turnover annually, i.e. between Rs 20-75 lakh. The composition scheme is a simplified scheme where one pays 1-2% on the entire invoice but one does not get ITC. This is a PAN-based turnover but not a state-specific turnover, which means, all states put together will not be able to go for a composition scheme and one is under a normal scheme. This means one will get a credit of all the input taxes that they have paid and have to charge the normal GST rate which is applicable, which is effective 12% in the case of real estate.
GST says that whatever additional credit a developer gets, the price has to be reduced by that amount. Likely to be enforced on the lines of the Competition Commission of India, the ‘Anti Profiteering Authority of India’ will take steps to check collusion between businessmen who may not pass on profits to the consumer.
Post GST works contract means any contract which involves construction of an immovable property, services to immovable property, whether goods or services.
Place of Supply Rules
As far as real estate is concerned, transactions are for under-construction properties. Fundamentally, if a sale is happening for an under-construction property it will attract GST. Therefore, a constructed property which has received completion certificate or occupation certificate or land will not attract GST. The interest and penalty on a delayed payment recovered from buyers comes under supplies.
In a nutshell, the price of a property is not the final outcome of taxes alone. There are other factors including demand-supply dynamics and government policies, which play a critical role in determining the price of a property.