What is GST on Under-Construction Property?
In India, GST on under-construction property is something both buyers and sellers need to understand. GST stands for Goods and Services Tax, and it is applied to the sale of properties that are still being built or developed. This tax applies to both residential and commercial properties that are still under construction.
What is an Under-Construction Property?
An under-construction property is one that is still being built and has not yet received the Completion Certificate (CC) from the authorities. As long as the property is under construction, GST is applied because the buyer is paying for a service, i.e., the construction of the property.
Once the builder finishes the construction and gets the Completion Certificate (CC), the property is no longer considered under construction, and GST is not charged.
Is GST Applied on Under-Construction Properties?
Yes, GST applies on under-construction properties, but the tax rate is different for different types of properties. The GST rate is charged on the construction service provided by the builder. Here is how it works:
- Regular Residential and Commercial Properties: The GST rate is 5%.
- Affordable Housing: For affordable housing, the GST rate is lower at 1%, but only if the property qualifies under certain conditions.
Example 1: Regular Residential Property
- Property Price: ₹50,00,000
- GST Rate: 5%
- GST Amount: ₹50,00,000 x 5% = ₹2,50,000
- Total Price: ₹50,00,000 + ₹2,50,000 = ₹52,50,000
Example 2: Affordable Housing
- Property Price: ₹30,00,000
- GST Rate: 1%
- GST Amount: ₹30,00,000 x 1% = ₹30,000
- Total Price: ₹30,00,000 + ₹30,000 = ₹30,30,000
The affordable housing option has a lower tax rate to make it easier for people to buy homes.
When is GST Not Applicable?
There are certain situations when GST is not charged:
- Completed Properties: If the property is finished and has the Completion Certificate (CC), GST does not apply.
- Sale of Land Only: If you are buying land without any construction, GST is not charged.
- Affordable Housing: If it meets the government’s criteria, such as price limits and area limits, GST is charged at just 1%.
Who Pays the GST?
The builder or developer collects the GST from the buyer. The buyer then pays the GST as part of the total cost of the property.
Example: How GST is Paid
- Property Price: ₹40,00,000
- GST Rate: 5%
- GST Collected by Builder: ₹40,00,000 x 5% = ₹2,00,000
- Total Price Payable by Buyer: ₹40,00,000 + ₹2,00,000 = ₹42,00,000
The buyer pays ₹42,00,000, which includes ₹2,00,000 as GST.
Input Tax Credit (ITC) and GST
For builders, they can claim something called Input Tax Credit (ITC). This means they can reduce the GST they owe by the GST they have already paid for construction materials and services.
However, buyers cannot claim ITC on the GST they pay. The GST that buyers pay is part of the total property price and cannot be refunded or used to reduce taxes.
Example of ITC for Builders
- GST Paid on Materials: ₹1,00,000
- GST Collected from Buyer: ₹2,50,000
- Net GST Paid by Builder: ₹2,50,000 - ₹1,00,000 = ₹1,50,000
In this case, the builder will pay ₹1,50,000 to the government after subtracting the GST paid for materials.
GST on Real Estate Projects with Multiple Phases
Many large real estate projects are built in phases. GST is applied only to the under-construction phases. Once a phase gets the Completion Certificate (CC), it is no longer considered under construction, and GST will not apply on those properties.
Example of Phased Projects:
- Phase 1 (Under Construction): GST is applied.
- Phase 2 (Completed): No GST.
If you buy property from Phase 1, you will have to pay GST. But if you buy from Phase 2, no GST will be applied.
Table: GST Rate and Payment Comparison
Frequently Asked Questions (FAQs) on GST for Under-Construction Property
1. Is GST applied to both residential and commercial under-construction properties?
Yes, GST applies to both residential and commercial properties under construction, at a rate of 5%. For affordable housing, the GST is only 1%.
2. How is GST calculated on under-construction properties?
GST is calculated on the construction cost. For example, if the property costs ₹50,00,000 and the GST rate is 5%, the GST amount will be ₹2,50,000.
3. When does GST apply to a property?
GST is applied only while the property is under construction. Once the Completion Certificate (CC) is issued, GST is no longer charged.
4. Can buyers claim Input Tax Credit (ITC) on GST paid for under-construction properties?
No, buyers cannot claim ITC on the GST they pay for under-construction properties. Only builders can claim ITC on materials they use.
5. Are there any exemptions from GST for under-construction properties?
Yes, GST is not applied if:
- The property is completed (after receiving the CC).
- You are buying land without construction.
- The property is affordable housing and meets certain conditions.
6. Who is responsible for paying GST?
The builder or developer collects the GST from the buyer. The buyer then pays this GST along with the cost of the property.
7. Does GST apply to properties sold in phases?
Yes, GST applies to under-construction phases. Once a phase is completed and gets a Completion Certificate (CC), GST will not be charged for properties in that phase.
Key Takeaways
- GST applies to under-construction properties at a rate of 5% for regular residential and commercial properties.
- Affordable housing gets a reduced GST rate of 1%.
- Completed properties are exempt from GST.
- The builder collects the GST, and the buyer pays it as part of the property cost.
- Input Tax Credit (ITC) can be claimed by builders, but buyers cannot claim ITC on GST paid.
- GST only applies to the construction cost. Land sales are not taxed.
Understanding GST on under-construction property helps both buyers and sellers make better decisions. Buyers can better calculate the total cost, while builders ensure they follow the correct tax laws.
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