Before India launched the GST, real estate transactions involved a variety of taxes like VAT, service tax, and stamp duty, just to name a few. With GST, the taxes have been simplified, but not necessarily lowered. GST on real estate applies differently to various aspects of it . Whether you’re a sales agent, a landlord, or you own a construction business, it’s important to understand when you’re liable to pay taxes.
GST Rate for New Constructions
If your company builds structures that you intend to sell to a buyer, the GST law sees you as supplying a service. As a result, you must pay GST. This is true whether you’re selling the whole building or just a part of it.
Originally, you needed to pay 12% GST on the value of the building plus the value of the land. When the GST Council met in May of 2018, it changed these rules. At this meeting, the Council decided to raise the rate on new constructions from 12% to 18%. This doesn’t mean that your taxes will rise dramatically. The Council also voted to leave out the value of the land when calculating the taxable amount. You can also claim full input tax credit to help reduce your taxes.
GST Rates On Real Estate Sales
When you sell a building, the amount of tax you pay depends on the state of the structure. If you’re selling properties that have completion certificates and are ready for move-in, you do not need to pay GST. Only properties that are under construction attract GST when they are sold.
If you’re selling a property that’s still under construction, but the buyer paid you in full before July 1, 2017, you do not have to pay GST. In this case, it doesn’t matter when construction is completed. Since the sale took place before GST, you paid a service tax of 4.5% on the transaction. However, if you only received part of the payment before July 1, 2017, the service tax you paid on that payment satisfies the tax requirement. When your buyer pays the rest of the balance, that amount is subject to the 18% GST rate.
How Does GST Affect Rental Properties?
If you’re renting an apartment or a building for people to live in, you don’t need to pay GST. Residential rent is one of the services that is exempt from GST, though the law does state that the GST Council has the freedom to change that status. If you rent commercial spaces, you must pay a GST of 18% on the rent , but only if your company’s total rental income is more than INR 20 lakh. For real estate agents who specialize in renting commercial properties, this could pose a problem if more companies decide to operate out of their homes or smaller offices to save on taxes.
Overall, the GST regime makes it easier to keep your real-estate-related business tax-compliant. But it may increase your tax liability. When you know how the law applies to your company, you can adjust your cash flow and business practices to fit into the GST rules.