GST on under construction property

Q: Do we have to pay 12% GST for under construction property ? Does it means buying an already built apartment is better ?

Nimish, Apartment Resident

29th September 2017

Buying property in Hyderabad

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real estate regulation and development bill

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gst impact on under construction properties

gst on under construction property

gst for under construction properties

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Replies (2)

I agree with both the gentlemen. In the previous regime, for example in Maharashtra, VAT was charged on a composition scheme of 1%. This meant that the developer could not claim the input tax credit (ITC) for all the raw materials used in the construction of the property. For any inter-state procurement, a developer had to bear all costs without getting any benefit of ITC. But this will be possible under GST. This means that a Maharashtra developer who has bought cement from Gujarat will now be able to claim ITC on the commodity.

Siddharth Bharadwaj, Hyderabad

29th September 2017

Comment

But remember Mr. Nimish, the option of getting full input set-off credit that developers enjoy on under-construction projects would not be applicable on ready-to-move-in flats. This could effectively mean higher costs for homebuyers of ready-to-move-in flats.

Vani reddy, Hyderabad

29th September 2017

Hi, Nimish
The GST is aimed at reducing tax complications and the overall burden of the double tax, from the economy. Thus, ideally, it should not lead to an increase in the cost to the buyers. Under the tax regime, many of the construction materials are under the 18 and 28 percent slab. However, as the input tax credit is available, the overall tax incidence should be neutralized.

Suraj.V, Hyderabad

29th September 2017

Comment

Yes, the finance ministry, by its June 28 notification, allowed 1/3rd of an apartment cost to be deducted towards the transfer of land or the undivided share of land and pay GST at the rate of 18% on the balance amount. The effective GST rate, thus, becomes 12%.
When a buyer pays the developer, he makes a lump sum payment, which includes the cost of both construction and land. Barring exceptional cases, the price does not provide a break-up of land cost and construction cost.

Kashif Mohammed, Hyderabad

29th September 2017