GOODS AND SERVICES TAX: THE GROUND REALTY!
Goods and Services Tax (GST) is being levied at 12% on the purchase of an apartment or a developed plot from July 1. Now, for homebuyers, what would be the most suitable option–in terms of the stage of construction at which one buys–and why?
Under the GST regime, no tax will be levied on purchase of a housing unit in a completed project, which re ceived OC, or where registry can be done.
If a project is com pleted and occu pation certifi cate is applied for but is not is sued by the au thority, the new buyer will have to pay GST at the rate of 12% on the entire cost of the flat. Thus, the net cost of ownership of the flat is higher by the amount of the GST levy, than the cost had the project received OC. [However, for completed project for which OC is not received, if the builder submits the invoices of purchases of inputs, he would get a credit of 2.40% of the cost, which he can pass on to the customer.] In Noida, Greater Noida, and Yamuna authority regions, if a project has obtained OC, GST will not be levied on the sale of housing units in it.
Even after receiving the OC, registry of housing unit in the project may not be allowed if the developer has not cleared dues to the authority against the project.
Under GST, developers get credit for the taxes paid after July 1 on the purchase of con struction inputs like cement, steel, paints, bathroom fittings, etc, from the tax that a buyer will pay on the finished unit. Therefore, developers must be passed on to buyers the credit against the taxes paid after July 1 on the purchase of inputs that they get by reducing the price of the housing unit.
If the credit against the taxes paid on inputs to construct a project is Rs 400 per sq feet, the developer should reduce the price by the same amount–Rs 400 per sq ft, in this example. And, GST is levied on the reduced sale price.
The government claims that prices should not increase if the entire credit against taxes paid on inputs to complete a project is passed on to the buyers. But this is applicable only if the entire project was implemented in the GST regime–that is, after July 1.
In the newly launched project, where developers must pass on the benefit of the entire credit they get for the taxes paid on inputs, the net cost of ownership for buyers should not increase, particularly in the medium and affordable range of housing.
In the premium segment, however, prices are likely to go up.
In partially completed projects (projects under construction), only a part of inputs will be purchased after July 1, to complete them.Therefore, a developer can claim credit against the taxes paid only on those inputs that he purchases after July 1 to complete the project. This will reduce the benefit that developers can pass on to customers, as shown in the chart.