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How GST is Charged on Houses Under Construction?

The Central Board of Excise and Customs (CBEC) recently issued a clarification regarding applicability of Goods and Services Tax (GST) on under-construction and ready-to-move-in property. GST was implemented on 1 July 2017.  Read more about how GST will be charged when you buy a house, at what rate and at what stage.

GST On Under Construction Houses

GST On Under Construction Houses

No GST on completed properties

Transfer of completed property is not considered as rendering services to a buyer and thus does not attract GST. According to the CBEC’s recent clarification, “Sale of building is an activity or consideration which is neither a supply of goods nor a supply of services. (Para 5 of schedule III of the CGST Act, 2017).” So if you buy a completed property, it will help you save money in form of tax.

GST applies to under-construction properties

If you are buying an under-construction property, it is considered as availing a service from the builder; hence, you are supposed to pay GST on it. According to the GST law, construction of a building, complex or a part of it, intended for sale to a buyer, attracts GST on the sale price. However, the tax should not be charged if the property is being bought after the issuance of completion certificate by a government authority or after the property has undergone occupation, which means it is a case of resale.

An under-construction property attracts GST at the rate of 18%. But it is not charged on the entire value of the property; it is charged only on two-third of the value. One-third value of the property is considered as the cost of land. According to CBEC, “effective rate of GST payable on purchase of under-construction residential or commercial properties from builder involving transfer of interest in land or individual share of land to the buyer is 12% with full input tax credit (ITC).”

In case the property that you have bought has been under-construction since 2015 and will get completed in 2018, then the amount paid or invoice raised before 1 July 2017 should have attracted a service tax at the rate of 4.5%. But any payment made towards purchase of the house or property after 1 July 2017 will attract GST at the rate of 12%.

Also, real estate services which do not include transfer of land rights attract GST on the entire amount. According to CBEC, “consideration which doesn’t constitute transfer in land or undivided share of land as part of consideration, such as construction services provided by a sub-contractor to the builder, attract GST at the standard rate of 18% with full ITC.”

Developer or service providers are expected to pass on the benefit of ITC to homebuyers, which will eventually bring down the total impact of tax on property value.

Read more about Goods and Services Tax on our blog.

Write your GST queries to us at [email protected]