The real estate sector is one of the leading and the most rapidly growing sectors in India. In the backdrop of continuously revolutionizing global trends in each and every sphere of human civilization whether it is a business, lifestyle, career choice, or a leisurely activity, it is becoming more and more evident that the entire landscape has achieved and is still striving for greater development. And words like ‘development and ‘landscape’ only bring to our minds a singularity of thoughts i.e. of land, buildings, and infrastructure.
Although the Goods and Services Tax (GST) does not contain a definition of Real estate, it is safe to define Real estate as the property constituting lands (including all the resources available on it) and buildings. And to classify the same, there are at least four types of real estates in India viz.
- Residential – This kind involves residential buildings, societies, apartments, isolated single/multi-floor homes, etc.
- Commercial – This type of real estate composes shopping complexes, office complexes, corporate projects, medical and educational institutions, as well as hotels and resorts.
- Industrial – This type of real estate constitutes large and compact manufacturing units and associated edifices, for instance, warehouses. These buildings are usually utilized in the production of goods, storage, and logistics.
- Unallocated Land – This real estate is nothing but the vacant lands, currently either awaiting utilization or is under agriculture for the interim period/ permanently.
To stress a little bit on the significance of real estate, there is not a single establishment in the whole wide world that acquires some impact on the lives of the people without having a building. This idea goes hand in hand with every other aspect of human civilization already mentioned i.e. lifestyle, business, career, or leisure; each one of which associates itself with buildings or say, institutions. Surprisingly, one can dive back into the times prior to the commercial revolution, before the modern, medieval and ancient times, and even before the Common Era (CE), and finally, discover that real estate was one consistent element in all the times. Talking about the present, in India, the real estate business singlehandedly contributes to about 9% of the total GDP. This can be sufficient to apprehend that the growth of the real estate sector, unlike other sectors, is not dependent on the market forces. In fact, like the steel industry, real estate is also the backbone of all industries.
Given the indispensability of real estate, and to ascertain uninterrupted growth and regulation, the Government of India has lately implemented and enforced the Real Estate (Regulation and Development) Act, in 2016 followed by the GST Act in the succeeding year, which was then followed by 33 meetings devoted to the cause. In the next and the consecutive sections, we shall de-cloud the synergy between the recently updated GST regime and the applicability to the Real estate.
GST Rates for Real Estate
Residential Property
Arguably recognized as one of the greatest economic reforms in India, GST on Real Estate has been playing a decisive role in transforming the entire tax regime. In the contribution to the same, in the latest GST Council Meeting, the new GST rates were acquainted in the residential real estate that has also been in effect since April 1st, 2019. Long story short, a fresh set of GST rates on residential real estate businesses have been implemented and duly enforced by the law. And the entire directive regarding residential property suggested the following amendments:
- All the residential property that does not come under the ambit of the affordable housing segment shall be charged at 5% GST excluding the Input Tax Credit (ITC).
- 1% GST applicable to be levied without ITC on the residential properties that are a part of the affordable housing segment.
GST Rates for Real Estate: Construction Materials
There are two principal dimensions of GST’s pertinence in the real estate. One is the dimension of “goods”, which is the applicable GST on diverse construction materials, whereas the other dimension, is of services (construction). Coalescence of the two aspects adds to the final cost of the holding for the owner, of course with subject to various rates at various stages. The grand total GST applied can be estimated by summing up the SGST (GST applicable under the jurisdiction of the State) and CGST (GST applicable under central regime), hence, 9% SGST + 9% CGST equates to 18% GST, and if 6% on SGST + 6% on CGST, then that equates to 12% GST, so on and so forth.
GST Rates for Real Estate: Construction Services
Below is the table of revised GST on real estate rates for construction services in the 33rd GST meeting.
| GST on Key Construction Services | |
| Under-construction holdings under the Credit Linked Subsidy Scheme | 8% |
| Under-construction holdings (exclusive of holdings under the Credit Linked Subsidy Scheme) | 12% |
| Composite supply of works contract for affordable housing | 12% |
| Composite supply of works contracts to government agencies/local govt. bodies | 12% |
| Composite supply of works contract (exclusive of any government bodies, local govt., or affordable housing) | 18% |
| Works Contract (excluding govt. bodies) | 18% |
The Effect of GST on Real Estate & the Conclusion
In the wake of demonetization when the trend of economic decline was in effect, GST on real estate was implemented in July 2017. Part of the trend was also caused by the RERA Act (Real Estate Regulation and Development Act, 2016). Nevertheless, as soon as the early financial year of 2018, demand and supply for real estate recorded a steep growth. Undoubtedly, it was impelled by the firm rise in affordable and mid-level income housing. Despite the silver lining, housing prices were either moribund or discovering a fringy surge throughout the country while in metropolitan cities e.g. Delhi/NCR, prices were accounted to face a decline of 2% decline till the third quarter of 2018. (Reports suggest)
However, the declining trend in costs was majorly the consequence of surplus rather than just the impact of the GST, since the benefits related to the input tax credit in the majority of the instances were not passed by the developers. In instances where ITC welfares were conveyed to house buyers, the amendment in prices was not up to mark.
The resale market, on the other hand, was also critically affected due to the costs that were reportedly dropping by 15% to 20% in the Delhi/NCR. The scenario became the part of the phenomenon despite the fact that the GST does not pertain to properties for resale. Hence, anyone can summarize that the positive and negative effects of GST on Real Estate cannot be authoritatively measured.
Fortunately, according to the forefront industry players and researchers, 2020 is making better promises for the real estate industry, apparently due to the estimated rise in demand for both residential and commercial real estate.
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