Impact of GST on Under-Construction Projects

Impact of GST on Under-Construction Projects

As the GST rates for nearly all the products and services have nearly been finalized, the GST Council has decided to bring the works contracts under the 12% slab in GST. The decision has made it mandatory to levy GST on the under-construction real-estate projects—while the ready-to-move houses will be out of the new tax regime.

Now here, the question over its impact on the buyers gets floated as the experts don’t have a universal opinion. According to some real-estate news websites, it will inflate the price of on-going projects—which will eventually impact the buyers.

If you look at the current scenario, a works contact in real estate sector attracts 6% service tax, in addition to 1-5% Value Added Tax (VAT) that differs on the subject of states’ own tax regime. As a whole, the works contacts in real estate industry is levied by 9-10% indirect taxes.

Based on the above figure, some experts believe that the new tax regime is going to inflate the under-construction projects. But on the other hand, some experts have some different but justified opinions. They think the new tax regime will remove the dual taxation. It will eradicate the multiple taxations on contract value that realtors have to pay at several fronts.

GST on the under-construction project is said to have all the taxes subsumed into a universal one. And more importantly, the developers would be able to avail of the tax credit, which will later reduce the impact of the new tax regime.

The price of other elements in real-estate construction projects:

As far as the price of inputs in works contract is concerned, the market experts believe that the new tax regime will be lowering the cost of key inputs like land, steel, and other raw materials. Because all these things will be purchased from GST-registered vendors, the transaction will automatically attract the tax credit.

For the property prices, it is universally going to get reduced by GST, irrespective of some states if the existing VAT is lower than the proposed 12% GST rate. But more or less, it is not going to result in any undue spike in the price.

What to do if your purchased house is under construction phase?

It is universally endorsed that the new tax regime would hardly result in any sorts of price rise—however, you need to contact your real estate developer to discuss any potential changes. You must not leave the things on the professionals as ultimately you will have to bear if the new tax regime inflates the cost of inputs.

On the other hand, you should reach out to your banker so as to check out whether the new tax would affect EMIs on the home loans. Collect as much information as you can, as it will help you take a right decision.     

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