Real Estate- Tax Rates Reduced? Beware

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Below is an analytical or contrary or logical view circulated on whatsapp:-

Real Estate- Tax Rates Reduced? Don’t be Mislead:

Affordable housing for concessional GST rate, redefined, to mean houses up to a carpet area of 60 sq mtrs in metro cities, and up to a carpet area of 90 sq mtrs in non-metro areas, with a cap in property value.

New GST rate of 1% proposed for affordable housing, from earlier rate of 8%. For non affordable housing (residential complexes), new rate of 5% recommended, from earlier 12%.

The new rates will be without any ITC benefit to the builders. The builders will continue to pay GST on all their materials and services, that go into the project cost, mostly @18%. They presently set off this input tax against their GST liability of 8% or 12% as the case may be.

Now, with the proposed new rates, this input tax will add to their project cost, leading to increase in the base price. The landed real estate prices to the customers will therefore not be significantly affected.

In case of low cost housing, the major cost component is materials and various services, attracting 18% GST. The output GST being only 8%, hardly any cash outflow is involved.

Now without any ITC benefit, this 1% levy would be payable in cash, which the builder would collect from customers. This may lead to in effect, increase in prices of affordable housing.

However, in case of premium properties, materials and services cost comprise a very low component of the project cost. Thus, the present tax rate of 12% involves a cash outflow, which is obviously collected from the customers. The new rate of 5% may effectively reduce the tax impact on such projects.

Builders and Buyers Beware.

One Reply to “Real Estate- Tax Rates Reduced? Beware”

  1. Amar Soni says:

    Hello Sir,
    Thank you for giving such a brief details. there is one question which is not answered any ware. i have booked my home 3 month back and i have made payment. builder has already collected 12% of GST with amount of cheque i have it to builder. if i paid 1 Lakh to builder i need to give additional cheque of 12 thousand with my payment against my property. i have already paid 20 % of my property document value and remaining 80 % i need to pay so how much GST i need to pay to government after 5% GST is getting applied.

    My apartment is not coming under affordable housing scheme.

    Thank you,
    Amar Soni

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