The impact of GST on real estate transactions, particularly the sale of land and developed plots, has been a subject of considerable discussion and analysis. In this blog post, we will delve into the implications of GST on the sale of land, exploring tax rates, input tax credit provisions, and the treatment of developed plots under the Goods and Services Tax regime. Understanding the nuances of GST in the context of real estate is crucial for both buyers and sellers, as it directly influences the financial dynamics of such transactions. Let’s navigate through the complexities of GST and shed light on its implications for the land and real estate sector in India.
Under the Goods and Services Tax (GST) regime, the tax landscape for real estate transactions has undergone significant changes. This article delves into the intricate details of the GST impact on the sale of land and developed plots.
Tax Rates on Under-construction and Affordable Housing
In the realm of under-construction properties, a uniform GST rate of 12% prevails. However, completed properties are exempt from GST. Notably, affordable houses benefit from reduced rates, shifting from 8% to 1%, while other non-affordable houses witness a decrease from 12% to 5%. This reduction is subject to builders refraining from claiming Input Tax Credit (ITC).
Pre-GST Tax Scenario for Sale of Land
Before GST, the sale of immovable properties like land was exempt from Value Added Tax (VAT). Instead, stamp duties were levied on such transactions.
GST and Exemptions for Sale of Land
According to Schedule III of the CGST Act, the sale of land is neither considered a sale of goods nor a supply of services. Consequently, GST doesn’t apply to land sales. However, an important clarification from the Gujarat Authority For Advance Ruling (AAR) adds nuance to this. If the land transaction includes additional services like electricity, water lines, or land leveling, as seen in plotted developments, GST becomes applicable.
Value, Time, and Place of Supply
- Value: Since land is an immovable property, no GST is applicable on its sale. However, if additional services are bundled in a composite supply (e.g., plotted developments), GST applies to those services.
- Place of Supply: For services related to immovable properties, the property’s location is considered the place of supply.
- Time of Supply: Determined by the date of the invoice, payment receipt, provision of services, or recipient’s accounting entry, based on specific conditions.
Input Tax Credit Provisions
Section 17(5) of the CGST Act restricts (ITC) for goods or services used in constructing immovable property (excluding plant and machinery). This limitation applies whether the construction is carried out by the owner or a third party.
GST Implications on Sale of Developed Plots
Schedule III categorically states that the sale of land doesn’t attract GST if it exclusively relates to the transfer of ownership. However, the involvement of additional services in developed plots, such as water and drainage lines, subjects the transaction to GST. The nature of the agreement between parties becomes crucial in determining GST applicability.
GST Implications on Renting and Leasing of Land
Under GST, both renting and leasing of land are considered supplies. Long-term leases (30 years or more) attract GST at 18%, as confirmed by a Bombay High Court decision. Short-term leases follow the same rate. Exemptions exist for specific categories, such as leasing land for agricultural purposes or for developing infrastructure for financial businesses by government entities.
In conclusion,
Navigating the GST impact on land transactions requires a nuanced understanding of the nature of the transaction, services involved, and the prevailing tax provisions.
The evolving landscape of GST regulations underscores the importance of staying abreast of updates to ensure compliance.
GET IN TOUCH