GST IMPACT ANALYSIS ON REAL ESTATE

INTRODUCTION

One of the most complex areas of the tax levied by the Centre and the States is works contract and sale of property. Currently, such transactions are broken into three parts – the value of goods and materials, value of services and value of land. The States apply VAT to the goods portion and the Centre taxes the services portion, with no explicit tax on the transaction value of land.

In GST regime, there will not be any concept of manufacture, sale or service etc. There will be only one concept i.e. ‘Supply’. Construction activities includes ‘works contract’ which is being categorized as ‘Services’.

Presently builders/developers are paying following indirect taxes :

However, in GST all the above taxes would no more be applicable and there will be only one tax i.e. GST. Stamp duty would continue to be in force even after advent of GST.

Some of the services which commonly prevalent in the Real estate sector are discussed below:

Construction Services

S.No.	Under Current Regime	Service tax rate	VAT	Under GST Regime	Rate
1.	Under construction flats Service tax is applicable on under construction flats on 30% of gross consideration where :  Flat size over 2000 sqft  Sale price over one crore	Effective rate 4.5% (15% of 30% of gross amount)	Effective rate  8.75% ( 12.5% of 70%)	Under construction flats GST on construction of buildings intended for sale to a buyer, where the value of land is included in the sale value.	12%
	All other cases where flat size is less than 2000 sqft or  sale price is less than 1 crore	Effective rate 3.75% (15% of 75%)	Effective rate  9.375% ( 12.5% of 75%)
S.No.	Under Current Regime	Rate	Under GST Regime		Rate
2.	Ready-to-move-in property Ready-to-move-in properties do not attract any service tax as the developer is selling a completed property.	NIL	Ready-to-move-in property Sale of complete property (including land) where whole consideration received after completion of construction	NIL

Current Rates and GST rates

Name of item	GST Rate(%)	Existing Rate(%)  (Excise + VAT)
Cement	28	30
Plaster	28	26
Ceramic tiles	28	26
Copper screws, nuts, bolts	18	18.5
Aluminium ingots, rods, wires	18	18.5
Tin bars, rods	18	18.5
Zinc goods	18	18.5

HSN for input products

S.No	Article Name	HSN Code
1	CEMENT BRICKS	68101110
2	ORDINARY PORTLAND CEMENT, DRY	25232910
3	PAINTS & VARNISHES BASED ON POLYESTERS	320810
4	COPPER BARS, RODS AND PROFILES	7407

Other impacts

Seamless flow of credits

In GST regime all the above duties/taxes (except stamp duty) will get subsumed, therefore a builders should be able to avail the input tax credit of all its procurement of goods/ services. Therefore, it would reduce the tax costs substantially in the construction industry.

Under GST, it is expected that seamless credit of all taxes paid on procurement of goods/ services will be allowed so that net outflow of GST liability would be minimized.

GST on Stock Transfers

Since, transfer of inputs/ capital equipments from one site to another is quite common in this sector. Therefore, builders operating from multiple locations in different states, then it would require to pay GST on stock/ Assets transfers from its premises in one state to its premises in another state.

Further, in case builders are having multiple business verticals within the state and if a builder opts to take separate registration for each such business vertical, then GST needs to be paid for stock transfers even when made within the same state.

Multiple Registrations

Concept of centralized registration for all the projects will end and builders having a site in multiple States would require to obtain registration in each State from were the construction activity/ supplies are being undertaken even though the project is for a very small period or for a small value.

ITC (Input Tax Credit)

In case of works contract

The composite supply of works contract in this sector will fall under the 18% GST rate with full input tax credit (ITC).

In case of construction services

Full ITC would be available for the various goods and services utilized in the construction, though any overflow of ITC beyond the output GST liability will not be refunded.