Goods and Service Tax on buying houses
GST is like air it can be found everywhere as this is charged on each product. It is applicable on house irrespective of the fact that you have purchased it or has constructed it.
As per the prevailing circumstances and situations government is taking different measures for benefitting both buyers and sellers.
Let us understand GST on New house in details.
After the new schemes which are being launched by government, it’s expected that the demand of residential house properties will increase.
A cut in the goods and services tax charged on sales of residential properties was announced by the government. As it looks to stimulate the economy by driving up consumption.
What are the rates for housing projects covered under Affordable Housing Project?
The Goods and Services Tax Council, which comprises both central and state finance ministers, announced that the new rate will be 5 percent, reduced from 12 percent, on all new housing projects except for those which are covered under affordable housing project. They have also decided to slash the tax rate on affordable housing projects to 1 percent from 8 percent. However, builders will not be able to claim input tax credit (ITC) under the new GST rates.
As per the decision taken by the GST Council, the developers of residential projects which are incomplete as on March 31, 2019, will have the option either to choose the old structure with ITC or to shift to 1% rates, without ITC. Builders will get a one-time option to continue paying tax at the old rates (effective rate of 8% with ITC) on ongoing projects.
Ongoing buildings means where construction and actual booking have both started before April 1, 2019, but which will not be completed by March 31, 2019. The new tax rate of 1% for affordable houses and 5% for others, without ITC, will apply on new projects.
Will this be beneficial for constructors?
The reduction in the GST for under-construction projects is the most decisive move that government took. As it will stimulate the demand and sales of under construction properties. The constructors were tensed as the demand for house reduced due to high cost and GST. But this move will fill the necessary gap to increase the demand in under -construction segment, which has been suffering from low sales level from last many quarters.
What does this mean for home buyers?
The decision taken by GST Council will definitely benefit buyers. Especially who made payment under construction-linked payment schemes .
Affordable housing definition after being defined within Rs 45 lakh budget, more properties got covered under this category. The slash in GST rate, coupled with this, increase in the value in definition, will induce more sales . And more homes will fall in this budget range.
Demand for residential properties is expected to receive a boost. As the lower tax burden on home buyers will push up demand in the segment which, in turn, will keep developers committed to build more affordable homes.
And more and more persons will be able to afford their own home with less burden of liabilities which it brings with them,
Affect of new rate on who already bought house?
Let us understand this with an example.
Atharav, assistant manager with a babatax was among the happy people who bought a house. About 4 months ago, Atharav bought an under-construction apartment in Gurgaon that came under the Haryana government’s affordable housing scheme for ₹21 lakh. He has paid about ₹10 lakh so far, along with GST at the rate of 8%. But after his payment the Goods and Service Tax (GST) Council announced the reduction in GST rates on under-construction houses. After the GST Council slashed the rate on affordable housing projects to 1% from the earlier 8%. Atharav hoped that he could save ₹77,000 on the remaining ₹11 lakh that he has to pay to the developer.
But his happiness, however, was to be short-lived as the GST Council decided to give developers a choice in how to levy GST on properties already under construction which could mean no savings for Atharav.
In a nutshell this could be understood that for those who have already made payment in the under construction scheme before the rate changed may not get benefit.
As because constructer for those contracts has got the option to choose the rate which he wants to implement.
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The author of above article is Sneha Bhalotia.