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Published on:
February 20, 2023
By
Paramita

Applicability and Impact of GST on Real Estate Projects in India

Real estate is one of the largest contributors to the Indian economy, with an estimated 5% contribution to the country's GDP. The sector was also one of the most adversely affected by the implementation of the Goods and Services Tax (GST) in July 2017. GST, which replaced all indirect taxes, has had a significant impact on the real estate sector, particularly in terms of the cost of construction, the sale of properties, and the overall taxation structure of the sector.

In this article, we will discuss the applicability and impact of GST on real estate projects in India.

Applicability of GST on Real Estate Projects

Under GST, real estate projects are classified as either "under construction" or "completed."

In case of under-construction projects, GST is levied on the construction services provided by the builder or developer. This includes the supply of goods and services related to construction, such as cement, steel, and labour. The GST rate applicable to under-construction projects is 18%.

In the case of completed projects, GST does not apply, as the developer has already paid all the necessary taxes and completed the construction work.

Impact of GST on Real Estate Projects

The implementation of GST has had a significant impact on the real estate sector in India. Here are some of the changes that have taken place:

Increased Cost of Construction

One of the most significant impacts of GST on real estate projects is the increased cost of construction. GST has led to an increase in the cost of raw materials and services required for construction, such as cement, steel, and labour. As a result, developers have had to pass on these increased costs to customers, leading to higher property prices.

Input Tax Credit (ITC)

Under GST, developers are eligible for input tax credit (ITC) on the goods and services used in construction. This means that the taxes paid on inputs can be deducted from the final tax liability. However, the ITC is only available for under-construction projects and not for completed projects. This has led to developers prioritizing under-construction projects over completed projects.

Impact on Affordable Housing

Another impact of GST on real estate projects has been on affordable housing. The government has exempted affordable housing projects, defined as projects where the carpet area of the house is up to 60 sq. m, from GST. This has led to an increase in the number of affordable housing projects being undertaken by developers, as it provides them with tax benefits.

Impact on Property Prices

The impact of GST on property prices has been mixed. While the increased cost of construction has led to higher property prices, the availability of ITC has helped offset some of these costs. However, the overall impact on property prices will depend on a number of factors, such as the location of the project, the developer's pricing strategy, and the demand for the property.

Impact on GST Compliance

The implementation of GST has also had an impact on the compliance requirements of developers. Under GST, developers are required to register for GST and file monthly returns. This has led to an increase in compliance costs for developers, particularly for those who operate in multiple states.

Conclusion

The implementation of GST has had a significant impact on the real estate sector in India. While it has led to an increase in the cost of construction, it has also provided developers with tax benefits, particularly in the affordable housing segment. The impact on property prices will depend on a number of factors, and it remains to be seen how the sector will adapt to the new tax regime in the long term.

Real estate is one of the largest contributors to the Indian economy, with an estimated 5% contribution to the country's GDP. The sector was also one of the most adversely affected by the implementation of the Goods and Services Tax (GST) in July 2017. GST, which replaced all indirect taxes, has had a significant impact on the real estate sector, particularly in terms of the cost of construction, the sale of properties, and the overall taxation structure of the sector.BusinessReal Estateimpact-of-gst-on-real-estate-projects-in-india

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Updated on:
March 16, 2024