GST on houses: Nine months after rollout, confusion reigns supreme resulting in buyers feeling cheated

The Goods and Services Tax (GST) is hardly a year old, having been rolled out on 1  July 2017. While it is still beset by procedural hassles, confusion reigns supreme in the market for residential houses. There exits a mistaken view that ready-to-occupy flats with occupancy certificates (OCs) are free from GST. And that builders charging a GST on such ready-to-occupy flats are cheating buyers.  In fact, a view is being propagated that it is better to purchase a ready-to-occupy flat as it is exempt from GST, as opposed to registering with a builder and making staggered payments for a unit, depending on the stages of construction. This is not true.

GST is a destination based tax. Accordingly, the buck stops with the ultimate buyer. The tab has to be picked up by the buyer, whether he participates at the inception of the project or steps in when the flat is ready.  To be sure, there are advantages in stepping in when the flat is ready to occupy vis-à-vis being an early bird -- immunity from the vagaries of the construction industry, immunity from being a victim on account of diversion of funds by a builder, among other things.

Representational image. PTI

Representational image. PTI

But contrary to ill-informed or deliberate propaganda, there is no escaping GST for those stepping in when a flat is ready unless of course the builder, unable to sell, reduces the price and markets the deal as ‘GST saved’.

A builder is supposed to maintain a meticulous account of the GST paid on various inputs used in a project, as the GST rate on various construction materials is not uniform.  This is a direct consequence of the GST rate not being uniform which is the case in many countries that have embraced VAT of which GST is a variant.

According to a report in The New Indian Express, different tax rates are applicable to materials used and services hired. This results in builders paying a different GST amount for each project. As builders are eventually transferring the GST burden on to home buyers, it is essential for people to take note of the following while buying a new home: Different GST rates are applicable on different construction material. For instance, cement is charged at 28 per cent, a works contract at 18 percent and bricks at five percent. As the GST varies from item to item and also from location to location, builders are calculating the whole amount and charging buyers, the newspaper added.

The news item reproduced above is by and large true except that the GST rate cannot vary from location to location unless the builder is economical with the truth. The builder receives an input tax credit when he calls upon homebuyers to pay the GST incurred on the whole project.  And for the process, it is immaterial whether he has collected staggered payments or has been able to sell ready to occupy flats, or a combination of both as is common in the real estate market.

The GST Council should clear the air with a media campaign in public interest. It must correct the notion that there is no GST on ready-to-occupy houses.  The confusion arises as the contract is either a works contract or a sale of immovable property. It's a works contract for buyers who participate in the process at the construction stage and a sale for those who buy when the flat is ready.

But this distinction does not make any difference to buyers' tax fortunes. Whether it is a buyer participating at the inception or one stepping in when the flat is ready, both aren't interested in bricks, paint, sanitary fittings, among the other things used in the flat. They enter into agreement to buy a habitable and completed residential house. And hence the incidence of GST on both should be the same, contrary to the view that early birds bear a greater burden.

(The writer is a senior columnist and tweets @smurlidharan)


Updated Date: Apr 16, 2018 11:34 AM

Also Watch

Social Media Star: Abhishek Bachchan, Varun Grover reveal how they handle selfies, trolls and broccoli
  • Monday, July 16, 2018 It's a Wrap: Soorma star Diljit Dosanjh and Hockey legend Sandeep Singh in conversation with Parul Sharma
  • Monday, July 16, 2018 Watch: Dalit man in Uttar Pradesh defies decades of prejudice by taking out baraat in Thakur-dominated Nizampur village
  • Monday, July 16, 2018 India's water crisis: After govt apathy, Odisha farmer carves out 3-km canal from hills to tackle scarcity in village
  • Sunday, July 15, 2018 Maurizio Sarri, named as new Chelsea manager, is owner Roman Abramovich's latest gamble in quest for 'perfect football'

Also See