Goods and Services Tax is a comprehensive tax regime that has replaced many of India’s indirect taxes. ie. Commodity tax, value-added tax, service tax, etc. The Goods and Services Tax Act, which took effect on July 1, 2017, increased transparency in the taxation process. However, many homebuyers often have questions about how GST affects their property and how to calculate GST on under-construction property with examples.
What is the GST rate for works contractors?
A works contract is essentially a works contract and may also include the delivery of goods for the performance of the contract. It is a combined supply of both services and goods, with the service element predominating in the parties’ contract. Works contracts can relate to both land and immovable property.
| Description of Service | GST Rates |
| Services under works contracts are offered to the local government, state government, union territory, and central government. Contract services for construction, construction, commissioning, installation, completion, installation, repair, maintenance, refurbishment, or modification of the above works. Historical Monument Archaeological site Archaeological excavation Antiquity Canal Dam Other irrigation works Pipeline Conduit Plant | 18% |
| Services under works contracts are offered to the local government, state government, union territory, and central government. Road-Bridge Tunnel Terminal for road transport Civil structure or any other original work (See Note-1) Pollution control plant-Effluent treatment plant-Funeral, burial, cremation of deceased-Building (See Note-2) | 18% |
| Works contract service provided to any person by way of construction, erection, commissioning, or installation of original works. Railway-Monorail, Metro An individual residential unit, excluding part of a dwelling 60 sqm low-cost housing in residential projects (see note-3) Post-harvest storage infrastructure for agricultural products Cold storage for agriculture produces Mechanized system for handling food grain machines Equipment | 18% |
| Works contract service provided to Central Government, State Government, Union Territory, and Local Authority by contract services for construction, construction, commissioning, installation, completion, installation, repair, maintenance, renovation, or modification of any of the above works. Original non-commercial work (commercial, industrial, or other non-business means) Educational institution-clinical facility Arts and Cultural Facilities Condominium Administrative self-use, government dormitory, or for specific people | 18% |
| Construction contract work performed by a subcontractor for the main contractor for Historical Monument Archaeological site Archaeological excavation Antiquity Canal Dam Other irrigation works Pipeline Conduit Plant Non-commercial original work ( other than commercial, industrial, or other non-business means ) Educational/clinical/art/cultural establishment Residential complex Gov. self-use, Gov. quarters, or for specified persons | 18% |
| Works contract service provided to Central Government, State Government, Union Territory, and Local Authority for primarily earthworks (i.e. 75% or more earthworks) | 12% |
| Works contract service Mainly from subcontracting earthworks to general contractors (meaning 75% or more earthwork) | 12% |
Note 1:
Civil structures or other original works related to the schemes below
- Jawaharlal Nehru National Urban Renewal Mission
- Rajiv Awaas Yojana
Civil structures or other original works related to the schemes below
- Housing for All (Urban) Mission
- Pradhan Mantri Awas Yojana (Urban)
Note 2:
In premises owned by entities registered under Section 12AA or 12AB of the Information Technology Act of 1961 for the purpose of centralized cooking or distribution of lunches under lunch plans sponsored by the Central, State, Union Territory, or Local Government.
Note 3:
Low-cost housing of 60 square meters per house for residential projects.
- Approved under the Scheme of Affordable Housing in Partnerships framed by the Department of Housing and Urban Poverty Alleviation, Government of India
- Housing for All (Urban)/Affordable Housing component in partnership with Pradhan Mantri Awas Yojana Mission or state government housing programs.
What is the valuation rule in GST?
According to GST valuation rules, tax can be calculated according to the ad valorem principle. In other words, the taxpayer can calculate the amount of tax owed based on the assessed value of the goods or services provided. Yet, when assessing the amount of tax under GST, consider the following three points.
i) Transaction Value
The transaction value is the taxable value. In other words, the value paid or required to be paid by the buyer to the supplier will be considered transaction value under GST. It should be noted that the supplier and buyer are not related and that the only consideration is price.
ii) Mandatory Inclusions
Below are some of the important things to consider when evaluating:
- Taxes, fees, or duties imposed by law other than GST
- Expenses incurred by the buyer on the supplier’s behalf
- Interest, late fees, or contractual penalties
- Any government-provided direct or indirect subsidies
- Any other incidental expenses incurred by the supplier, such as commission or packaging and handling costs
iii) Exclusion of Discounts
When calculating the taxable value, the taxpayer must deduct all discounts from the value of the supply, whether they are trade or pre-supply discounts. However, it is possible to exclude the backorder discount during the evaluation if both of the following conditions are met:
- If the discount is granted in accordance with the terms of a preliminary contract concluded between the purchaser and the supplier.
- Purchaser should reverse any Input Tax Credit (ITC) applicable to such discounts.
What is the rate of GST on construction?
The GST rates for construction works are
- 18% of the construction of complexes, buildings, civil structures, or parts thereof, including complexes or buildings intended for sale in whole or in part to a purchaser
- 12% for the construction of complexes, buildings, etc. that are sold to the purchaser along with the land.
- The GST Council approves a transition plan to apply a 5% tax rate on housing under construction and 1% on affordable housing.
How is GST calculated on an under-construction property example?
Assume you purchase an under-construction residential property worth Rs. 80,00,000 from a builder that does not qualify for an affordable housing scheme. The land value of this property is Rs. 20,00,000. The construction GST would only apply to the remaining Rs. 60,00,000.
The GST rate for the under-construction property will be
60,00,000 x 5% = Rs. 3,00,000
While the GST has had a positive impact on the real estate market, developers may want to know that it has had a negative impact.
This is because if the raw material is purchased from a supplier that is not subject to GST rules, the buyer will have to pay the tax. ie. he only bears the cost of the transaction.
How do you calculate GST on a new flat?
GST on the purchase of affordable housing
| Property cost per Sq. Ft | Rs 8500 |
| GST rate on flat purchase | 1% |
| GST | Rs 85 |
| ITC benefit for a material cost of Rs 2,500 at 18% | Not applicable |
| Total | Rs 8,585 |
GST on the purchase of a luxury flat
| Property cost per Sq. Ft | Rs 20,000 |
| GST rate on flat purchase | 5% |
| GST | Rs 1000 |
| ITC benefit for the material cost of Rs 26,000 at an average of 15% | Not applicable |
| Total | Rs 21,000 |
How do you calculate GST on a plot?
Goods and Services Tax (GST) is not paid on the sale of land, even if it is sold after work related to basic needs (land clearing, installation of sewers, etc.) is completed.
What are different GST and service tax on under-construction property?
In the real estate sector, service tax is only levied on real estate under construction. It is imposed on building complexes, civil engineering structures, or real estate put up for sale. The property service tax rate is either 3.75% or 4.5% depending on the size of the property and transaction value.
The GST payable by a builder transferring ownership of land or undivided land to a buyer for a residential or commercial property under construction is 12% at the ITC. He has to pay 18% GST on 2/3 of the property value and ⅓ rd of the amount deemed as value of land or undivided share of land supplied to the buyer.
How much GST is paid on registration of property?
Registration fees paid when registering property are not subject to GST. Stamp duty is payable at the time the property is registered. Significant taxes that a property buyer must pay to the relevant state government to register the property in his name include stamp duty and registration fees.
The table below shows a breakdown of stamp duty and registration fees by state.
| States | Stamp Duty Rates |
| Andhra Pradesh | 5% |
| Arunachal Pradesh | 6% |
| Assam | 8.25% |
| Bihar | Male to Female – 5.7% Female to Male – 6.3% Other cases – 6% |
| Chhattisgarh | 5% |
| Goa | Upto Rs 50 lakh – 3.5% Rs 50 – Rs 75 lakh – 4% Rs 75 – Rs 1 crore – 4.5% Over Rs 1 crore – 5% |
| Gujarat | 4.9% |
| Haryana | For males – 7% in urban areas For females – 5% in urban areas |
| Himachal Pradesh | 5% |
| Jammu and Kashmir | 5% |
| Jharkhand | 4% |
| Karnataka | 5% (above Rs 45 lakh) 3% (Rs 21-45 lahks) 2% (Less than Rs 20 lakh) |
| Kerala | 8% |
| Madhya Pradesh | 7.5% |
| Maharashtra | 6% for male 5% for female |
| Manipur | 7% |
| Meghalaya | 9.9% |
| Mizoram | 9% |
| Nagaland | 8.25% |
| Odisha | 5% (Male) 4% (Female) |
| Punjab | 7% (Male) 5% (Female) |
| Rajasthan | 5% (Male) 4% (Female) |
| Sikkim | 4% + 1% (in case of Sikkimese origin) 9% + 1% (for others) |
| Tamil Nadu | 7% |
| Telangana | 5% |
| Tripura | 5% |
| Uttar Pradesh | Male – 7% Female – 7% -Rs 10,000 |
| Uttarakhand | Male – 5% Female – 3.75% |
| West Bengal | Upto Rs 1 crore – 6% Above Rs 1 crore – 7% |
Frequently Asked Questions (FAQs)
Can we claim GST on the under-construction property?
Under GST, a flat rate of 12% applies to properties under construction, but properties that are completed or ready for sale are not subject to GST if a Certificate of Completion (CC) is issued.
Is stamp duty charged on GST?
GST Excludes stamp duty and registration fees. Stamp Duty will continue to be levied on both completed and under-construction properties as it was before the GST regime.
Is GST calculated on agreement value?
GST is charged on the actual transaction value, not the agreement value.
Is GST calculated on carpet area or built-up area?
GST is calculated on carpet area.
Is GST calculated on MRP or selling price?
GST is applied to the selling price, not the MRP. MRP includes all taxes including GST.
Wrapping Up
The information above will help you quickly become familiar with the GST calculation process. You can contact InstaFiling to calculate your GST and find out what GST you have to pay when buying an under-construction property.