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Previously we discussed the impact of GST in a series of articles. Click here to view the articles. As we all know, the new tax regime will eliminate the complex tax structure which is plaguing the country currently.

The Centre has fixed 18% GST rate for under-construction properties with full Input Tax Credits (ITC). Yet, it has excluded the cost of land. Here is a list of key takeaways from the new law which one must know


Real estate sector will be taxed at 18%:

Under-construction properties will be taxed at 18% ( 9% SGST and 9% CGST). Union will allow deduction of land value equivalent to one-third of the total amount charged by a developer. The effective tax rate shall be 12%.

Stamp duty and property tax to be subsumed:

Stamp duty and registration charges are outside the ambit of the new tax regime. This happened because they fall under the State levy while property tax falls under the municipal levy. Eventually, they are going to merge in the new regime.


FILING of Detailed returns :

The Union government informed that a filing of detailed return by traders/businessmen is not compulsory this year. One can do with a summary return. The returns which are filed in summary but as individual transactions have to be uploaded in the relevant system.

Higher tax on ready-to-move-in properties:

The consumers will have to shell out more on ready to move-in flats under the new tax regime. This is because developers who have large unsold properties are planning to pass on the higher tax burden to home-buyers.

GST Implications

Simpler tax issue redressal:

Post-GST, some tax issues are going to become easier to manage as there would be no overlapping jurisdiction between the Centre and the States. However, other misunderstanding due to newness of law may crop up in near future which is inevitable. It might prove difficult for the consumers to migrate to a new tax regime without proper guidance. Also, various tools like VComply helps the users to migrate to the new tax structure.

Nuisance of unregistered vendors :

If the receiver of the goods happens to be a registered person, the liability to pay GST shall shift from the provider of goods and services to the receiver. Any kind of purchase from a unregistered dealer will attract reverse charge mechanism rules on the receiver. Thus, this clearly increases the compliance cost. It will discourage unorganized players who circumvent tax to operate in the market.

Impact on Developers

A real estate developer had to pay Central Excise Duty, VAT and various entry taxes on construction materials. Also, they paid 15% tax on labour services, architect fees etc. Thus, eventually the tax burden was on the buyer. But, under GST, the cost of logistics will significantly reduce. The input tax credits (ITC) shall be of a great help to increase profit margins with a simpler taxation system. The composition scheme would be an option, but only to providers of materials; it shall no more be applicable to developers.

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