Construction of real estate will be attracting 18 percent GST, though home prices may not be affected. The government notified GST for construction of real estate at 18 percent as against 12 percent announced earlier. Land value will be deducted, and it will equivalent to one-third of total amount charged by the developer. Experts believe that the revised rate will be tax neutral. This is because the GST obligation of the homebuyer will still be the same. Even after GST becomes active, homebuyers won’t be burdened by the additional cost and tax outgo.
“This revised rate is unlikely to impact property buyers beyond what was announced earlier. The rate of 18% would now be charged on two-thirds of the under-construction property value, which will be the same as 12% on the entire value of the property as announced earlier. This is based on an assumption that the states would also come out with a similar notification as the Centre has,” partner at legal firm Economic Laws Practice, Harsh Shah, told ET Realty.
However, luxury realty projects on prime land parcels may have their prices slightly increased. This is because the additional credit to the developer won’t be enough to offset the increase in the output tax. Currently, the developer initially pays octroi, central sales tax and excise duty among others, and then the burden is passed on to the consumer. Post GST, developers shall receive credit for input taxes paid. This will help lower the cost.
“The notification on Central Goods and Services Tax (CGST) issued today specifies the rate on Construction Complexes at 9%. CGST and State GST are two components of GST. The GST rate on our industry remains unchanged at 12 %. Any conjecture or speculation of a change in incidence of tax on real estate to a rate other than 12% is unwarranted,” said CREDAI President Jaxay Shah.