In India, GST was introduced on July 1st, 2017, with the aim of bringing all indirect taxes under one roof. Since then, it has undergone various revisions and updates. One of the most significant sectors that were affected by GST was the real estate sector.
Real estate, being a major contributor to the Indian economy, has always been subjected to multiple taxes and regulations, making it a complex sector to understand. Developers and builders have had to deal with multiple taxation structures like VAT, service tax, stamp duty, and registration fees, making the process of development and sale of plots challenging and expensive.
With GST being implemented, the real estate sector has undergone a major structural change, impacting developers, buyers, and sellers. Here's everything you need to know about GST on the development and sale of plots.
Under GST, the development and sale of plots fall under the category of real estate services. The GST rate for real estate services is 18%, with input tax credit (ITC) available on the basis of the cost of the land. The GST rate is applicable to various stages of the development and sale of plots, including:
1. Pre-construction stage
2. Construction stage
3. Post-construction stage
The development of plots involves multiple stages, including land acquisition, planning, construction, and marketing. GST is applicable to developers and builders who are involved in the development of plots. Here's how GST affects the development of plots:
Developers who acquire land for development purposes need to pay GST on the purchase price of the land. The GST rate applicable is 18% with ITC. The developer can claim the ITC paid on the purchase of land and use it for the payment of output GST on the sale of plots.
During this stage, developers prepare the layout plan and obtain the necessary approvals from the authorities. GST is not applicable during this stage.
Construction is one of the most significant stages of plot development. GST is applicable to developers during the construction stage, and it is payable on the services availed by them, such as raw materials, labour, and contractors. The applicable GST rate is 18%, and the developer can claim ITC paid on these services.
Marketing is the stage where developers sell the developed plots to buyers. GST is applicable on the sale of plots by developers. The GST rate for the sale of plots is 18%. The developer can claim the ITC paid on the construction stage and apply it against the output GST payable on the sale of plots.
The sale of plots involves the transfer of ownership from the developer to the buyer. Here's how GST applies to the sale of plots:
When buyers resell the plots purchased from developers, GST is not applicable as it is considered a second-hand sale. However, stamp duty and registration fees are still applicable.
When buyers purchase plots from developers, the sale of the plot is subject to GST. The GST rate applicable is 18%, and it is payable on the total sale value of the plot. The buyer can claim the ITC paid on the purchase of the plot.
Developers need to pay GST on the sale of plots and file GST returns periodically. Buyers can claim the ITC paid on the purchase of the plot in their GST returns.
GST has simplified the taxation structure for the development and sale of plots. Developers can claim ITC paid on the purchase of land, construction services, and other related services, and apply it against the output GST payable on the sale of plots. Buyers can claim ITC paid on the purchase of the plot in their GST returns. The introduction of GST has made the process of development and sale of plots more transparent and streamlined.
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