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GST on under-construction property

GST on Under-Construction Property (2023 Rates)

There is a significant change in the GST rate for the property sector. Many buyers are confused about the application of GST to property. However, the GST Council has recently issued clarifications regarding the applicability of Goods and Services Tax (GST) to buildings under construction. Let’s take a quick look at the GST on under-construction property.

What is the GST rate on the construction works contract?

The works contract is a broad concept that encompasses all agreements relating to the construction of a structure on a property. Additionally, it includes specifics about the products and raw materials used to complete any project.

 Structures/buildings that are part of GST under construction contracts are

  • Apartment
  • Residential complexes
  • Single residential units
  • Industrial buildings
  • Multi and single-story buildings
  • Administrative and commercial buildings

The government recently provided relief to buyers of properties under construction. A property under construction is taxed at 18% by him, but the homebuyer pays only 2/3 of it, which means she pays only 12%. A 6% deduction is made as it is considered the transferred property’s value.

Furthermore, following the 33rd Amendment of the GST Council, the tax rate for property under construction has been reduced from 12% to 5%.

What is the GST rate for an under-construction flat?

For affordable housing (property under construction up to Rs 45 lakhs), the tax rate will be 1%. However, this only applies to properties without an Input Tax Credit (ITC).

An affordable house price ceiling is Rs 45 lakh for metro and non-metro projects, but carpet area requirements may vary. Only affordable apartments under construction with carpeted areas of ​​60 sqm in metro (Delhi-NCR, Mumbai-MMR, Bangalore, Chennai, Hyderabad, Kolkata) and 90 sqm in non-metro.

The cap for non-affordable projects is 5%, without the input tax credit.

Which construction materials have 5% GST?

Below is a list of construction materials with a 5% GST rate.

  • Sand
  • Building bricks, Fossil bricks
  • Fly-ash bricks
  • Pebble, gravel, and crushed stone
  • Building stones
  • Tiles (Earthen, roofing)

Which construction materials have 18% GST?

Below is a list of construction materials with a 5% GST rate.

  • Bitumen or oil shale and tar sands, bitumen and asphalt, natural asphaltite and asphalt rock
  • Iron and steel products
  • Bamboo floor tiles
  • Pipe fittings
  • Locks

Which construction materials have 28% GST?

Below is a list of construction materials with a 5% GST rate.

  • Multicellular foam glass
  • Prefab components
  • Glass-based paving blocks
  • Cement
  • Wall tiles
  • Artificial stone, cement, concrete tiles
  • Copper wire
  • Paint and varnish
  • Ceramic sinks and bathroom fittings
  • Wallpapers
  • Base metal mountings and fittings

What is the GST rate on the construction works contract?

There are three different GST rates for work contract services. 18% GST, 12% GST, and 5% GST. Many works have a GST rate of 18%, but certain works, especially government-owned non-commercial works, have a GST rate of 12%. In one or two cases the GST rate is only 5%. 

Determining whether a particular construction contract falls under the 18% GST rate or the 12% GST rate can be very difficult in practice. Therefore, at the 47th Session of the GST Council, the Government decided to keep the GST rate at 18% for most types of works contracts.

What is GST rate for builders under composition scheme?

Builders adopted 1%/5% composition scheme for construction work. After receiving Building Completion certificate builder must pay 1%/5% GST on flat sales.

Subject to conditions:

GST is not charged on the construction of complexes, buildings, civil structures, or parts thereof, including complexes or buildings intended for sale in whole or in part to a buyer-

1. where the entire consideration has been received after issuance of Completion certificate, where required, by the competent authority; or

2. After its first occupation, whichever is earlier.

Therefore, If sale of flats takes place after receipt of completion certificate and where the entire consideration is received after issuance of Completion certificate , GST would not applicable.

What are the changes in the GST rate from 2022?

Below table shows the changes in GST rates.

New GST Rate on Property Under Construction and Completed
New GST Rate on Property Under Construction and Completed

Which property is exempt from tax?

In some cases, income from home ownership is tax-free. They are not taxable and are not included in your gross taxable income. They are not taxable and not included in the total income for tax purposes. The following property incomes are not subject to taxation:

  • Income from buildings in and around agricultural land that is part of form income is exempt under Section 10(1). Examples of this type of income include renting or leasing farms, warehouses, or godowns.
  • Income from local government property is tax-free.
  • Income from the house property of a political party is tax-exempt under Section 13A.
  • Income from property belonging to licensed scientific research institutes is tax-exempt under section 10(21).
  • Property income from educational and medical institutions is tax-exempt under Section 10(23C).
  • Income from property that serves charitable or ecclesiastical purposes is tax-exempt according to section 11.
  • Property income of trade union is tax exempt under Article 10(24)
  • The annual value of palaces owned by former rulers of Indian states is tax-exempt under section 10 (19A) where other palaces are taxed
  • Pursuant to Article 23(2), the annual value of the owner-occupied property is exempt from tax.
  • Income from property used for personal business or expense is tax-exempt pursuant to Section 22.

Frequently Asked Questions (FAQs)

Who pays the GST seller or the buyer?

Buyers are responsible for paying GST at the time of purchase.

Is GST compulsory for contractors?

Yes, GST is compulsory for contractors subject to gross income limits.

Can builders collect GST from customers?

Yes, the builder can collect the GST from customers.

Is GST applicable on old flats?

No, GST is not applicable to old flats. Buyers who purchase resale/old flats do not have to pay taxes under the Goods and Services Tax (GST).

What is GST rate for contractors?

GST rate for works contract services is 18%.

Wrapping Up

Government warns all construction companies using metering services to refrain from charging customers higher tax rates on payments made after the implementation of GST rates on properties of units under construction.

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GST on Commercial Property (Unlimited Guide)

GST on Residential Property (Complete List)

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