Tax Query: Do I have to pay 12% on house property when the rate has been reduced to 5%?
Home- House

1. I plan to purchase an apartment for Rs.62 lakh in Chennai. The builder is charging me 12% GST. However, I am aware that only 5% GST is applicable on non-affordable projects. Why am I liable to pay 12% GST?

In March 2019, the GST Council reduced GST rates on residential projects in affordable and non-affordable segments. For affordable housing projects, the rate was reduced from 8% to 1%, without input tax credit. For non-affordable projects, the rate was reduced from 12% to 5%, without input tax credit.

For projects that have commenced on or after 1st April 2019, the builders need to mandatorily pay tax at the new rate of 5% for non-affordable projects and 1% for affordable projects. However, for those projects that were ongoing, i.e. had begun construction prior to 1st April 2019, the real estate developer/builder was given the option of choosing between the old rates and new rates of GST.  

Hence, if your builder had opted for the old rate of GST, i.e. 12% in this case, then you will have to pay GST as per the old rate. 

2. I am purchasing a row house in Bangalore in the non-affordable housing segment. The builder is providing other services along with construction such as clubhouse membership, advance maintenance fees, development charges, etc. What is the rate of GST applicable on these other charges that are charged by the builder?

In a ruling by the Maharashtra Authority for Advance Ruling (AAR), it was ruled that the other charges charged by the builder do not fall under the scope of a composite supply. In fact, most builders show these charges separately, and the buyer pays stamp duty excluding these charges. Hence, these services are not naturally bundled. 

Going by this ruling, 18% GST will be applicable on other charges like clubhouse charges, electricity meter installation, maintenance fees, legal fees, development charges, etc., that are charged by a builder.

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in

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