Last Updated on June 20, 2024 by Satish Mishra
The Real Estate Regulatory Authority (RERA) seeks to protect the interests of the homebuyers and also to promote investments in the real estate sector. As per the new act, the real estate agencies are needed to register themselves with the RERA to have their normal course of business. The builders have to upload authentic documents and register their projects with the Real Estate Regulatory Authority. The RERA penalises the real estate agencies if they fail to act in accordance with the rules.
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Previously, The buyers of an under-construction property, were levied the Service Tax and Value Added Tax (VAT) in addition to other taxes paid by the builders on the raw material and services used during construction activities. Consumers faced problems due to the complex nature of the former tax regime. Later the two taxes subsumed into the newly introduced tax regime i.e. Goods and Services Tax (GST).
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Situation of under-construction Property in the Transitional Phase
When part of the consideration is paid to the builder, the buyers are liable to pay 4.5% service tax and VAT which together use to range from 7% to 9% (varies from state to state) applicable on the consideration paid before the July 1, 2017. However, payment made by the buyer to the builder on or after July 1, 2017 against invoices issued on or after July 1, 2017 shall attract GST at the rate of 12%.
If the entire consideration was paid to the builder before GST rollout, there is no GST payable on such property even if the construction is completed after July 1 2017. This transaction will attract service tax at the rate of 4.5% because as for the point of taxation rules, 2011, the transaction attracts service tax and not GST.
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According to Section 13(1) of the Real Estate (Regulation and Development) Act, 2016, the promoter shall enter into an agreement for sale and register the same before he accepts a sum more than ten per cent of the cost of the apartment, plot, or building.
However, The Government charges are mandatory and amount to around 15% to 20% of the agreement value. This includes:-
Stamp duty – It varies from region to region, from 5% to 8%.
Registration charges – It is 30000 or 1% of the agreement value whichever is lower.
Goods and Services Tax (GST) – It varies in between 8% to 12%. (New Tax regime)
Agreement execution charges – These charges needs to be paid at the time of registration and it varies from 5000 to 20000.
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Collection of GST on completed Projects
According to the Para 5 of Schedule III of the CGST Act 2017, Sale of building is an activity or consideration which is neither a supply of goods nor a supply of services. So, Transfer of a completed project or property is not considered as rendering services to a buyer and thus paying GST is not applicable. The homebuyers of real estate properties will not have to pay GST if they purchase a fully constructed property after the issue of completion certificate. So, it mandates the builders to reduce the prices of properties by passing on the benefit of lower GST rate to the homebuyers.
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GST in case of Affordable Housing Project
In the case of M/s Pyramid Infratech Pvt Ltd, Haryana where the ruling held that the benefit of Input Tax Credit (ITC) had been extended to all the goods and services which were utilised by any builder which was not available in the pre-GST era. Since Section 171 of the CGST Act 2017, not only deals with passing on the benefit of reduction in the rate of tax but also deals with passing on the benefit of ITC, the builder is held to be liable for anti-profiteering. The builders cannot charge any goods and service tax (GST) from home buyers as the effective GST rate on almost all affordable housing project is 8% which can be adjusted against the input tax credit (This is subjected to exemption by government directives). Accordingly, it was held that the builder shall reduce the price to be realised from the buyers of the flats as per the benefit of ITC received by him.
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Collection of GST on Projects in progress
When the building is sold before its completion and the consideration, whether in full or in part, is received before its completion. It is considered as availing services from the builder and hence, GST is applicable on it. Also, the real estate services which do not include transfer of land rights attract GST on the entire amount. However, it should not be more than what is stipulated through the act. As per the new reforms, there will be 12% GST on projects in progress excluding stamp duty, registration charges and agreement execution charges.
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What if the builder violated the rules of RERA?
RERA has prescribed regulations to the builders in order to bring more transparency and for speedy implementation of the real estate projects. If the builder fails to comply with the directions or violates the rules prescribed by RERA or the Appellate Tribunal then, the accused may face imprisonment or is subjected to fine as per the offence. As per the Section 31 of RERA, a complaint can be filed with either the real estate regulatory authority or the adjudicating officer.
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Real Estate (Regulation and Development) Act, 2016 is an act exclusive to the field of Real estate and it is advised to the consumer or aggrieved party to approach the RERA Tribunals as there is obligation on the Tribunal to solve the dispute as fast as possible. As GST made the taxation aspect transparent, implementation of RERA will bring in much required positivity, transparency and accountability on part of the developer, which in turn will enhance trust and confidence on part of the home buyers.
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This post is written by Avinash Medidhi from University of Delhi (Faculty of Law). For more info on the subject, please dial 99888-17966.
