GST calculation for existing and new under construction property buyers

With GST finally making its way to the market, buyers are deliberating its implication on their finances. To understand the implication, it is important to understand how taxes worked out previously (In case you are short of time, use our simple calculator given at the bottom of the post to identify the high level GST calculation for existing and new under construction property buyers).

  • On raw material and excise: 12.5% (constitutes 2-3% of total cost of property)
  • Entry tax/Octroi tax levy in different states (constitutes 1% of total cost of property)
  • Service tax on construction: 3.75%-4.5% (some items like PLC, Club membership, Power backup charges constitute 15% service tax).
  • VAT on construction material: 12.5%-14.5% and VAT under composition scheme: 1-2% (constitutes 3.5-4.5% of total cost of property)

Source of current tax breakup is economic times (ET).

You would see that before GST, the taxes constituted 11% to 13% of total cost of property (for brevity sake, lets average that out to be 12%).

The new GST regime ensures all these taxes are subsumed by GST and pegs the total tax on Under-construction property at 18%. Since it offers an abatement of 1/3rd on land cost, the effective GST is 2/3rd of 18% i.e. 12%. We suggest you look at the key GST terms before reading further below about GST calculation.

We can safely divide an Under construction project into those that are ongoing with existing buyers and those that would be launched henceforth:

 

For ongoing projects, a fraction of these taxes would have already been paid by builder in form of excise, VAT and state entry tax and by buyer in form of Service tax and VAT (where applicable). Hence, the input credit (tax already paid) will be deducted from total GST of 12%. Builders will usually have receipts for Service Tax and VAT. However, what will happen if the builder does not have receipt for excise and state entry tax. Most of the builders offload work to contractors and in some cases, contractors themselves arrange for construction material.

In either case, it might well be the case that builder possesses receipts for only 50% of the tax payable.

For rest 50% where receipt is not available, GST panel allowed only 60% of input credit to be adjusted (this was previously 40% but adjusted to 60% after trade unions/corporate demand).

Given this, it can be assumed that input credit of only around 80% of tax paid in form of excise and Octroi tax can be adjusted by builders.

As a result, around 0.8% to 1% additional tax over the current prevailing tax (Service tax + VAT paid by buyers) would have to be paid by buyer of an ongoing project.

 

For projects launched after GST, builders would want to ensure that they have receipts for all input taxes paid so that the input credit for the same can be adjusted while demanding GST from buyers. In such cases, it is claimed that tax payable will be more or less equivalent to Service tax + VAT paid by buyers before GST.

Impact on ongoing and To-be launched projects can be summarized as below:

GST impact

For ready to move projects, no GST would be applicable.

For maintenance charges however, tax payable by residents will increase from 15% to 18%.

Below is a simple calculator, that you could use to identify the high level impact of GST on you. Please note that the basis of calculation are some simple assumptions. The actuals could differ as more clarity sets in.

Last updated: July 3, 2017 at 21:27 pm

One thought on “GST calculation for existing and new under construction property buyers

  • July 4, 2017 at 2:08 pm
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    Thanks, you understands the pointed name!

    Reply

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