In 2000, the late Atal Bihari Vajpayee, the then prime minister of India, initiate a committee to draft new indirect tax law and i.e. GST which stands for Goods and Services Tax. It was launched to replace multiple indirect taxes in India. Such as excise duty, value-added tax (VAT), services tax, purchase tax, octroi, entry tax, luxury tax, and so on. Here, propertywala brings every fact and figure that you should know about GST in real estate.
DEFINITION:
The Goods and Service Tax Act was driven in Parliament on 29th March 2017 but it came into effect on 1st July 2017. It is the only tax that applies all over India and imposes on the supply of certain goods and services. However, GST does not replace customs duty, which is still required on imported goods and services. Different categories of products and services attract different tax rates under GST.
Now, we will go ahead with the GST regime which is given by our Honorable Prime Minister Shri Narendra Modi, In his words, the Goods and Services Tax (GST) is “a path-breaking legislation for New India”. Then, GST is not just a tax reform but a milestone in realizing Sardar Vallabhbhai Patel’s dream of building ‘Ek Bharat – Shrestha Bharat’.
GST APPLICABILITY IN REAL ESTATE:
APPLICABLE –
1. It is applicable to under-constructed flats only. 2. It is because the GST does not cover the real estate sector under its range. Therefore, the tax rate applicable on a property is charged under ‘work contracts.
NOT APPLICABLE –
1. GST does not apply to ready-to-move-in flats, plots, and lands. 2. Upon completion and receiving the occupancy certificate i.e.(OC), the property is categorized as ready to move in. That is why a developer cannot charge GST on selling ready-to-move-in homes.
GST RATE ON REAL ESTATE 2022:
Everyone has a dream of a house. Well! It is fine if you are planning to buy a property. Because buying the right property is one of the biggest achievements in life. So, home buyers in India have to pay GST on the purchase of under-construction properties such as flats, apartments, and bungalows. Before hurrying on to the process, the foremost thing you must ask yourself is,“what is the GST rate on real estate?”
PROPERTY TYPE
GST RATE FROM APRIL 2019
Affordable housing
1% without ITC (Input Tax Credit)
Non-affordable housing
5% without ITC
According to the table, if the property is affordable, the GST rate from April 2019 is only 1% without ITC. Also, for non-affordable housing, the GST rate is 5% without ITC.
WHAT IS ITC?
Input Tax Credit refers to the tax already paid by a person on any purchase of goods and/or services that are used or may use for business. Therefore, it is available as a deduction from tax payable.
AFFORDABLE HOUSING AS PER GST:
According to government norms, housing units worth up to Rs 45 lakhs are referred to as affordable housing in metro cities in which carpet area measures up to 60 sq. meters. The Delhi-National Capital Region, Bengaluru, Chennai, Hyderabad, the Mumbai-Kolkata are categorized as metropolitan regions. A housing unit in non-metro cities barring to be an affordable house, if it costs up to Rs 45 lakhs and has a carpet area of up to 90 square meters as mentioned in the given table.
CITIES
PRICE
Carpet AREA (SQ/M)
METROS
up to Rs. 45 lakhs
60 sq./m
NON- METROS
below Rs.45
90 sq./m
SOME FACTS TO BE NOTED WHEN CONSIDERING GST IN REAL ESTATE:
It does not subsume the stamp duty and registration charges, which you still have to pay.
Seller increases the cost of ready-to-move-in properties to factor in the GST cost. So, overall the under-constructed properties are still cheaper than ready-to-move-in properties.
That’s all you need to know about GST when it comes to real estate.
New Delhi: When the National Consumer Dispute Redressal Commission (NCDRC) made a unique decision sentencing the CEO and directors of Parsvnath Developers to three years in prison for ignoring his 2019 reimbursement order. To home buyers, it looked like the end of a long, dark tunnel. Dozens of middle-class families have been in trouble since 2007.
Refund amount is to be made with an interest rate of 12% per year from the date of payment, which is equivalent to Rs 1.55 crore rupees per buyer. However, the company appealed to the Supreme Court, which upheld the NCDRC’s decision and gave a 3 months of relaxation, starting from 9th February.
The apartments in Parsvnath Privilege, a residential group with a proximity to the future Jewar International Airport, were booked by buyers between 2007 and 2009 at a price of 50 to 65 lakh. Today, 12 years after the last reservation, there are only 3 of the 20 residential towers. Of the promised 958 flats, around 126 have been completed and ready for handover. The company is completely silent about the remaining 832 unfinished apartments.
More than 1 lakh apartments are still pending!
The Greater Noida Industrial Development Authority (GNIDA) identified more than 100 builders who have been classified as “defaulters”. Together they owe about Rs 6,000 crore to the authority.
The list of defaulters is big and consists names of well known developers like Amrapali, which owes GNIDA more than Rs 2,700 crore. Unitech owes about Rs 410 crore and Parsvnath owes about Rs 113 crores. The names of other big developers like Panchsheel and Supertech are also in the list.
In 2019, Indian Express reported that the promised 1.06 lakh apartments in Noida and Greater Noida are still pending, and haven’t been transferred to the owners. Around 1.03 lakh apartments in the Greater Noida area didn’t get the completion certificates.
Jaypee Infratech Limited (JIL) has several pending projects and is yet to deliver about 17,756 of 30,000 apartments in the Wish Town project. Recently, several dissatisfied home buyers gathered in Jantar Mantar, New Delhi, to ask Prime Minister Narendra Modi to intervene in the JIL case in order to find a sensible solution.
According to some well-known real estate agents, in today’s scenario, builders don’t have enough capital to complete their projects.
A report from property consultant JLL India
In January 2020 JLL India in a report stated, in Delhi-NCR, Mumbai, Chennai, Kolkata, Benagluru, Hyderabad and Pune, around 2,18,257 residential units worth Rs 1,55,803 crore were delayed in different phases of construction. The Delhi-NCR had the largest insolvent companies or defaulters, accounting for about 70 percent in terms of volume and about 55 percent in terms of value.
Meanwhile, Parsvnath has been undergoing losses since 2016-17. According to one disappointed home buyer, the company does not seem in a hurry to give the compensation money in order to fulfill NCDRC order.
Rakesh Dhir, a retired army officer, who was one of the six petitioners said. “All my savings have been finished and the company has to pay the compensation till 9 May”. Rakesh Dhir paid EMI for an apartment that he should have owned ten years ago.
Families that have taken possession also suffer different problems. A year ago 12 families had shifted in Parsvnath tower and the developer had given them unfurnished apartments. The buyers not only completed the tiling work on their own cost, but also paid an additional Rs 10 lakh for organizing security and maintenance.
NCDRC strict order to Parsvnath!
Sukham Ahluwalia, homebuyer representative at the NCDRC, was pleased with the petitioner’s progress. He said- “It’s the first time that NCDRC has issued a strict order to Parsvnath.” The NCDRC had been trying to settle the case patiently. But the company denies to accept any terms and conditions. This forced the commission to issue a strict order.
In defense of the company, Manoranjan Sharma, Parsvnath’s lawyer said:- “The 3 month period or deadline has not completed yet.” When asked if the remaining apartments will be completed in the next few months, Sharma said, “This is not the subject the Supreme Court is considering. The company will give the compensation or return the money within the time limit issued by the court.”
It is clear that Parsvnath will comply with the NCDRC’s compensation order upheld by the Supreme Court.
John Lang LaSalle (JLL) in a report states that in the first quarter of 2021, home sales in seven cities, including Delhi-NCR, recovered by about 90% from pre-COVID levels. Out of the seven cities, Mumbai shows the highest sales figure, around 23% of new real estate sales in the first quarter of 2021, Delhi-NCR accounted for 21%. However, it is expected that figures may change till the second quarter of 2021.
Samantak Das, chief economist and head of research at JLL said. “The strong sales growth shows clear signs of demand and renewed consumer confidence in the market.”
Why Greater Noida have more number of defaulters?
So, what is the actual reason behind these pending projects and why there are so many defaulters in the NCR region, especially in Greater Noida? Some local real estate agents and brokers have explained the cause behind this. Most of them believe that builders are spending beyond their capacity.
Over-Investing
Satyapal Verma, an expert in the Greater Noida real estate market, said, “The main issue is that one can easily lease a land in Noida-Greater Noida by paying just 10 percent of the whole land value. Further rest of the money can be paid through EMI. Therefore, builders here started investing too much and also launched so many projects at the same period of time. Soon they were unable to pay their EMI on time and ran out of working capital.
Using bank money to buy more lands-
Another real estate expert said, “When Greater Noida came up, housing projects were advertised as ‘affordable’. At Rs 4,000 to 5,000 per sqft (range was actually “affordable” given the prices prevailing in the overheated Delhi NCR market). In general, these companies easily obtained construction loans from banks on favorable terms and without much difficulty.
If they were careful with their finances, developers can easily benefit from the cost arbitrage and sell homes at the advertised affordable prices.
In this case, the cost arbitrage arises due to the enormous price advantage that the Greater Noida real estate market offers over rest of the NCR region. It didn’t work because a lot of these developers used the bank’s money to buy more new lands without completing the projects they had taken originally.
Soon developers faced liquidity crunch and the overheated market began to cool. Ultimately results in lower property prices and lower builder’s profits. As a result the trend of delayed possession continued to grow and the home buyers did not get their promised dream homes or apartments.
According to people’s opinions, only a government-sponsored rescue package can make Greater Noida’s ongoing projects work. Also Parsvnath’s decision showed that the country’s courts in no mood to tolerate uncooperative developers.
A really interesting question rising up these days is that is affordable housing taken seriously by our policy planners and key stakeholders? Now-a-days, talking and discussing affordable homes has become a fashion, including those who were not as such associated with realty sector.
But when enters the term ‘affordable homes’, one must put up a question that affordable for whom? Around 44% of our population comprises of people earning Rs 8,500 to Rs 40,000 as their monthly income and fall both in the formal and the informal sectors. Are these flats for these 44% people? Also, the banks are now backing out from providing home loans. Arun Mohan, a senior advocate and writer answered all these questions in his latest offering “Affordable Housing: How Law and Policy can make it possible” .
According to Arun Mohan, there are three areas that need urgent attention to provide affordable homes: One, availability of flats which are affordable; two, availability of bank finance; and, three, availability of land for housing. Also, crisis of confidence is one of the major problem due to which prices are so high and the market is restricted. He gave answers to these questions too. After a keen analysis, he came to the conclusion that “certifying-cum-performance guaranteeing company” [or a regulator] is required, which would control the builders and issues a “wideguarantee certificate” to the flat buyer in order to ensure him that he will be delivered the flat he pays for. This guarantee will prove beneficial since both the flat buyer will be willing to part with his money and bank will also be willing to finance it.
