In India, the Goods and Services Tax (GST) is a value-added tax levied on the supply of goods and services. GST applies to the purchase price of under-construction properties. However, there are some scenarios and strategies that homebuyers can consider to avoid or reduce the GST burden. In this article, we will look at some strategies for avoiding GST on under-construction property.
Select properties that are ready to move into.
Choosing ready-to-move-in or completed properties is one of the simplest ways to avoid GST on under-construction property. GST does not apply to properties that have received a completion certificate or are ready for possession. This is because the GST only applies to the supply of goods or services, and in the case of ready properties, the supply occurred before the implementation of GST. Choosing a ready-to-move-in property may have advantages such as immediate possession, avoiding project delays, and avoiding GST liability.
Secondary Market Purchase
Another option for avoiding GST on the under-construction property is to purchase from the secondary market. The property is being resold in the secondary market by an individual who has already paid the GST to the developer. As a result, as a buyer, you will not be required to pay GST on the property's purchase price again. Purchasing from the secondary market can also provide benefits such as the availability of fully constructed units, potential price negotiation, and a shorter waiting period for possession.
Obtain Low-Income Housing Benefits
Under the Pradhan Mantri Awas Yojana (PMAY), the Indian government has introduced several incentives and benefits to promote affordable housing. Homebuyers can take advantage of credit-linked subsidies and lower GST rates under the PMAY scheme for properties classified as affordable housing. The GST rate for affordable housing properties is typically lower than the standard rate for regular under-construction properties. Homebuyers can potentially reduce their GST burden and take advantage of PMAY benefits by choosing an affordable housing project.
Cooperative Development Agreements
In some cases, developers enter into joint development agreements with landowners in which the developer builds the project in exchange for a share of the developed property. Such joint development agreements may have various tax implications, so homebuyers must carefully examine the agreement and its GST implications. Joint development agreements may be structured in certain circumstances to reduce the homebuyer's GST liability.
Transitional Credit
Homebuyers who paid VAT, service tax, or other indirect taxes on the purchase of under-construction property before the implementation of GST may be eligible for transitional credit. Taxpayers can claim transitional credit for taxes paid under the previous tax regime and deduct the amount from their GST liability. Buyers must meet certain conditions and follow the prescribed procedures under GST law to qualify for transitional credit. A tax expert or a chartered accountant can assist homebuyers in understanding the eligibility criteria and correctly claiming the transitional credit.
Conclusion
While GST applies to under-construction properties, homebuyers can employ various strategies to avoid or reduce the GST burden. Purchasing ready-to-move-in properties, purchasing from the secondary market, and taking advantage of affordable housing benefits can potentially avoid GST on under-construction property. Understanding transitional credit and investigating the implications of joint development agreements can also aid in effectively managing GST liability. Before making any decisions, homebuyers should consult with a tax expert or a chartered accountant to fully understand the GST implications and take informed steps to reduce the tax burden on their under-construction property purchase.
