How GST is charged on under construction Properties

In recent development, Central Broad of Excise and Customs issued clarification related to GST charges on under construction and ready to move in property. GST was implemented on July 1, 2017. GST is payable only on under construction houses. Read more about how GST will be charges when you buy house, at what rate and at what stage.

Here is how GST is charges under construction property depending on its stage

GST is applicable on under construction properties. So if you are buying an under construction property then you are liable to pay GST on property. As per law, building construction, complex or any part for selling to buyer, attracts GST on sale price. But Tax is not applicable to property which is bought after completion certificate issued by authority or after occupied that is in case of resale property.

Effect of Input Tax Credit

Under GST, 18 percent is levied on an under construction property. But it is not charged on entire value of property rather it is charged on two-third property value. One-third property value is considered to be land cost. GST rate effect on purchase of under construction residential or even commercial properties from builder linking transfer of interest in land to buyer is 12% with entire input Tax credit (ITC).

In case you have bought an under construction property that has been in same situation since 2015 and about to complete in 2018, then amount paid earlier. There is no GST payable on such property even if construction is completed after July 1, 2017. This transaction will attract 4.5% service tax rate. But any payments made for buying property after July 1, 2017 will attract 12 percent of GST rate.

Tax Rates under construction

Also, real estate services do not include transfer of land rights attract GST on entire amount. As per CBEC, which do not constitute transfer in land or undivided land share as part of consideration. Such as construction services provided by sub-contractor to builder, attract GST at standard rate of 18 percent with full ITC.

Under GST, an under-construction property now attracts 12 percent tax. Before you think how it affects value of an under-construction property. Also, developers will get input tax credit for taxes paid on cement and other construction materials. Also, reduction in number of taxes will benefit buyers. Since every state levies different taxes on under-construction properties.

GST applies to under-construction properties

On benefits of ITC to home buyers builders are expected to bring down effect of tax on property value. But there is no GST on completed or ready to move in projects. Developers try to lure buyers saying that there is no GST levied on certain properties. Buyers must not fall into trap and do not attract any GST which is ready to move in projects.

No GST on Completed property

Transfer of completed property is not take in as rendering services to buyer and does not come under GST. As per CBEC’s recent clarification, ‘Sale of building’ is an activity or consideration which is neither supply of goods nor supply of services. That means if you buy completed property, it will help you in saving money in form of tax. Also see GST taxpayer division base between Center and States

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