CBIC Clarification on Effective GST Rate for Construction (complex, building, flat, etc.)

CBIC has issued a Press Release to clarify certain issues relating to Applicable Output GST Rates, Input Tax Credit (ITC) and Effective Tax Rate on Construction of Property, like complex, building, flat, etc. under affordable housing or other segments, along with comparative tax rates applicable during  pre-GST period.

Further, Govt. has reiterated that GST is not applicable on sale of ready to move-in flats where completion certificate has already been issued by the competent authority, i.e. GST is applicable only on sale of under-construction property or ready to move-in flats but where completion certificate is yet to be issued at the point of time of sale.

CBIC Press Release dt. 8 Dec. 2018

1. It is brought to the notice of buyers of constructed property that there is no GST on sale of complex/ building and ready to move-in flats where sale takes place after issue of completion certificate by the competent authority. GST is applicable on sale of under construction property or ready to move-in flats where completion certificate has not been issued at the time of sale.

2. Effective rate of tax and credit available to the builders for payment of tax are summarized in the table for pre-GST and GST regime.

PeriodOutput Tax RateInput Tax Credit detailsEffective Rate of Tax
Pre-GSTService Tax: 4.5%; VAT: 1% to 5%(composition scheme)Central Excise on most of the construction materials: 12.5%; VAT: 12.5 to 14.5%; Entry Tax: YesNo input tax credit (ITC) of VAT and Central Excise duty paid on inputs was available to the builder for payment of output tax, hence it got embedded in the value of properties. Considering that goods constitute approximately 45% of the value, embedded ITC was approximately 10- 12%.Effective pre-GST tax incidence: 15- 18%
GSTAffordable housing segment: 8%; Other segment: 12% after 1/3rd abatement of value of landMajor construction materials, capital goods and input services used for construction of flats, houses, etc. attract GST of 18% or more.ITC available and weighted average of ITC incidence is approximately 8 to 10%.Effective GST incidence, for affordable segment and for other segment has not increased as compared to pre-GST regime.

3. Housing projects in the affordable segment such as Jawaharlal Nehru National Urban Renewal Mission, Rajiv Awas Yojana, Pradhan Mantri Awas Yojana or any other housing scheme of State Government etc., attract GST of 8%. For such projects, after offsetting input tax credit, the builder or developer in most cases will not be required to pay GST in cash as the builder would have enough ITC in his books of account to pay the output GST.

4. For projects other than affordable segment, it is expected that the cost of the complex/ buildings/ flats would not have gone up due to implementation of GST. Builders are also required to pass on the benefits of lower tax burden to the buyers of property by way of reduced prices/ installments, where effective tax rate has been down.

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