To give relief to home buyers, central and state governments decided in February to cut the rate of Goods and Services Tax (GST) on under-construction houses. From 1 April, these are taxed at an effective rate of 5% and the affordable ones in this category at 1%, compared to the earlier effective rates of 12% and 8% respectively. Effective rate of tax implies the cost of land is excluded from the taxable value of the project. Here are the five things that home buyers should know while buying an under-construction property.
1. What GST rate should one pay?
Flats in new projects which are launched after 1 April, the new lower tax rates will apply. These are flat rates applicable on the price and the builder cannot claim rebates for the taxes paid on raw materials and services used in construction. However, in the case of properties that were still under construction as on 31 March, builders and home buyers can chose between for the earlier rates--12% for premium ones and 8% for affordable homes with the benefit of input tax credits--and the new rates without input tax credits. Benefit of input tax credits would mean that taxes paid previously on materials, equipment and services used in construction will not be subject to taxation again on the final product as the builder can claim rebate on them.
2. What is an affordable house?
Houses priced below ?45 lakh are elegible for the concessional 1% tax rate on affordable houses. However, there are different carpet area requirements to be met in metro and non-metro areas. Only those with upto carpet area of 60 square metre in metro cities and 90 square metre in non-metro cities, towns and villages falling under the Rs. 45 lakh cap will be eligible for the 1% rate. Parts of the national capital region covering Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad are metro areas.
3. How to decide a project was under construction as on 31 March?
If work had commenced before 31 March but has not got completion certificate or the fist occupation of the house has not taken place before 31 March, it is an under-construction property as on this cut off date. On these projects, the option to chose between old and new tax rates is available.
4. What is the tax rate on shops and offices within a residential real estate project?
The effective new GST rate on shops and offices within a residential real estate project is 5% without input tax credit. This applies to both properties in projects launched after 1 April as well as to ongoing projects as on the cut off date where the builder or buyer have opted for the new rates. Buyers can also opt for the earlier rate of 12% with input tax credit in the case of projects that were under construction as on the cut off date. These rates are applicable on shops and offices within a residential real estate project where the carpet area of commercial apartments is not more than 15% of the total carpet area of all the apartments in the project.
5. What is the tax rate applicable if part of the payment for an under-construction flat is to be paid after the cut off date of 31 March?
The new lower tax rate will apply on the remaining payment to be made after the cut off date unless the builder has decided to go with the earlier higher tax rate and pass on the benefit of tax rebate to the consumer.