Applicability of GST on Construction Property

gst on property

There’s a lot of confusion among property buyers with respect to the applicability of GST under construction property.  Goods and Services Tax (GST) is an indirect tax which is levied on the supply of goods and services in the country. And hence, GST is applicable to services related to the construction of the property. However, GST isn’t applicable to the constructions which are completed. Here, in this article, we look at the applicability of GST under construction property transactions in detail.

As per Goods and Services tax law, construction of a building, complex, civil structure which is intended for sale to the end buyers are considered to be a service and GST is liable on such transaction – in case any consideration has been received before the issuance of a certificate of completion. However, Goods and Services Tax isn’t applicable in case the entire consideration for the property has been paid after issuance of a certificate of completion or after the first occupancy, whichever is earlier.

Hence, if you’re purchasing any property directly from the builder and the payments have been made to such builder prior to occupation, Goods and Services tax would be levied on the amount so paid. However, in case the property is purchased in a secondary transaction from the owner of such property, then GST won’t be applicable since the consideration is paid after the issuance of a certificate of completion or first occupancy.

CBEC has provided a clarification with respect to the applicability of GST under construction property and ready to move-in property. Transfer of property which is completed isn’t considered as services to the buyers and hence doesn’t attract Goods and Services Tax. As per CBEC’s clarification, “Transfer of building for a consideration is an activity that isn’t a supply of goods or services. So if you’re buying a completed property, it would help you in saving some money in way of tax.

Also Read: Tax Saving Tips for Property Buyers

A property which is under-construction would attract GST at 18%. However, it isn’t charged on the total value of such property; it’s levied only on the 2/3rd of its value. 1/3rd value of such property is considered as a cost of the land. As per CBEC, the effective rate of GST which is payable on the purchase of residential or commercial properties which are under-construction from builder which involves individual share of land to the buyer is 12 percent with full ITC (input tax credit).

If the property is bought that has been under-construction from 2015 and is likely to be completed in 2018, then invoice raised or the amount paid before July 1st, 2017 should have attracted a service tax at 4.5%. However, any payment made for the purchase of property after July 1st, 2017 would attract GST at 12%.

Buyers shouldn’t be worried about GST under construction property with respect to developers not passing the benefit of the additional tax credit as the provisions contained in the GST law provides for an anti-profiteering clause that makes it mandatory for a dealer for passing on GST benefits to the ultimate consumer. Hence, it’s a win-win for both the developers and buyers.

Any reduction in the GST rates on the supply of goods or services or input tax credit benefits must be passed on to end customers by a commensurate reduction in the price. If a seller doesn’t reduce his prices after a reduction in the GST rates, such matter could be referred to Anti-Profiteering Authorities. Anti-profiteering Authorities that have been set up for examining whether the ITC (input tax credits) or benefits of reduction in GST rates which is availed by the registered person has resulted in the corresponding reduction in the prices of such goods or services provided by such supplier.

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