Tax

One of the key economic sectors in every nation is real estate, particularly in India, where it has recently attracted attention.  There are various types of real estate transactions. 

The following types of transactions can occur in the real estate industry:

• The provision of immovable (commercial and residential) properties before completion.

• After completion, supply of immovable properties (commercial and residential).

• The sale of residential, commercial, or agricultural land.

• The sale of property rights (e.g. TDR, FSI)

Real Estate GST Rates until March 31, 2019

• Affordable housing projects are subject to a 12% tax (before deducting a third of the land value), making the effective rate 8% with the input tax credit.

• Other than Affordable Housing Projects, the rate is 18% (before taking a third of the land value into account), making the effective rate 12% with the input tax credit.

Affordable housing is defined as dwellings that fall under the current central and state housing programs as listed in appropriate government notification. 

GST rates for real estate beginning on or after April 1, 2019, following rate revisions for residential units are suggested in the 33rd GST Council meeting of 24.02.2019 and are finalized in the 34th GST Council meeting of 19.03.19, both of which are applicable from 01.04.2019:

• GST at 1.5% (effective rate: 1% after subtracting land costs) without ITC for reasonably priced residential apartments.

• GST at 7.5% (effective rate 5% after subtracting Land Cost) without ITC for residential units other than affordable residential apartments

• Other than some properties, which will be subject to GST at 5%, commercial properties would be subject to GST at 12% with ITC.

Affordable housing is defined as a residential home or apartment with a value of up to Rs. 45 lacs (for both metropolitan and non-metropolitan cities) and a carpet area of up to 90 square meters in non-metropolitan cities/towns and 60 square meters in metropolitan areas.

• New rates will be optional for projects that are currently underway.

• New rates that have been proposed will be applicable to any new developments. New Projects indicates those starting after March 31, 2019.

Option in regard to active projects

One-time option to continue paying tax at the old rates that must be exercised once within a prescribed time frame. If the option is not exercised by the specified deadline, new rates will be applied. The option must be exercised once within the specified time frame.

• All homes that comply with the GSTC's definition of an affordable home (90 square meters in non-metropolitan areas and 60 square meters in metro areas, with a value up to Rs. 45 lakhs), as well as affordable homes being built in ongoing projects under the current federal and state housing programs (such as the Pradhan Mantri Awaas Yojana or Housing for All by 2022), will be eligible for the new rate of GST at 1.5% (effective rate 1% after deducting Land Cost.

• Construction of the following shall be subject to the new rate of GST @ 7.5% (Effective rate 5% after subtracting Land Cost), without the benefit of an input tax credit.

• Any homes in active projects that are not affordable, whether they were reserved before or after April 1, 2019.

• For homes reserved before April 1, 2019, the revised rate will be available for payments due on or after that date. All residences in new projects other than those that are inexpensive.

• In a residential real estate project (RREP), commercial apartments, such as stores, offices, etc., must make up no more than 15% of the total carpet area of all the flats.

Effect of choosing the new tax rates on ongoing projects eligible for the Transitional Credit:

According to the press release of March 19th, 2019, transitional credits are as follows:

In order to transfer the ITC in accordance with the recommended procedure, ongoing projects (buildings where construction and booking both had started before 01.04.2019) and had not been completed by 31.03.2019 must:

• For residential projects, the transition formula approved by the GST Council extrapolates the ITC taken for the percentage of construction completion as of 01.04.2019 to arrive at the ITC for the complete project.

• ITC eligibility is then established based on the percentages of flats that have been reserved and invoiced. Therefore, the transition would be on a pro-rata basis based on a straightforward formula, with the availability of credit in proportion to the booking of the flat and the invoicing completed for the booked flat subject to a few protections.

• For a mixed-use project, the transition period must additionally provide ITC on a pro-rata basis in proportion to the carpet area of the commercial section in continuing developments (on which tax will be payable at 12% with ITC even after 1.4.2019).

The following requirements must be met in order for the new tax rates of 1% (on affordable housing construction) and 5% (on non-affordable housing) to be available:

• The input tax credit shall not be available, 

• At least 80% of inputs and input services shall be purchased from registered persons. For calculating this threshold, the value of services by way of grant of development rights, long-term lease of land, floor space index, or the value of electricity, high-speed diesel, motor spirit and natural gas used in the construction of residential apartments in a project shall be excluded.

Conclusion

To conclude, the GST, under-construction properties are subject to a single rate of 12%, whereas completed or ready-to-sale properties are exempt from GST provided that the Completion Certificate (CC) has been issued. The tax rates on residential properties were reduced by the GST Council in March 2019 from 12% to 5%, and from 8% to 1% for the affordable housing category. The new tax rate regime, however, will not allow for ITC benefits. 

The India real estate market size reached US$ 256.8 Billion in 2022. Looking forward, IMARC Group expects the market to reach US$ 780.6 Billion by 2028, exhibiting a growth rate (CAGR) of 9.2% during 2023-2028. Imagine if the number of transactions involving the acquisition and selling of real estate rose extremely quickly. Additionally, the budget for 2022 focused heavily on capital investments. It indicates that the government is also investing in the growth of the infrastructure. Since buying and selling real estate is a highly typical transaction, sellers and buyers often wonder what the tax implications will be. Several transactions, including the sale of real estate, are subject to tax deducted at source. Regardless of whether the Seller will experience capital gains, this TDS must always be subtracted. If the seller believes that more TDS has been deducted than necessary, he may request a refund while completing his income tax return. 

AMOUNT: 

As stated in Section 194-IA of the income tax code, TDS on the sale of the property is applicable. A buyer is required to withhold and deposit 1% of the transaction cost as TDS on the sale of property under Section 194-IA of the Income-Tax Act if the property's worth exceeds Rs 50 lakhs. In the event that there is a discrepancy between the stamp duty value and the actual sale value of the property, Section 194-IA does not indicate which amount should be taken into account for calculating the TDS on the property sale. No tax is to be deducted under section 194-IA if the consideration paid for the transfer of immovable property and the stamp duty value of such property are less than Rs 50 lakhs. Regardless of whether the property under discussion is a building, a vacant plot of land, or another sort of property, this TDS must be withheld from all types of property transactions. Regardless of whether a property is residential, commercial, or industrial, TDS must be withheld. Except for agricultural land, TDS must be deducted from all forms of real estate transactions. TDS on the Sale of Property by NRI would be levied even if the Transaction Value was less than Rs. 50 lakhs. TDS on the Sale of Property by NRI would be 20% + Surcharge + Cess.

GENERAL POINTS: 

• It is important to note that property cannot be registered below government-set circular rates, which are used to determine how much stamp duty will be charged on the sale. The property's market value may be greater or less than the amount subject to stamp duty. According to the notification made on February 1, 2022, the buyer will be required to determine TDS on a property transaction based on a higher valuation in such a situation.

• According to the Income Tax Act, all TDS deductions must be deposited with the government on or before the designated TDS deposit due date. Also required is the application for a TAN No. under Section 203A from anyone who deducts TDS. When deducting any TDS, as well as when submitting returns and depositing TDS with the government, this TAN No. must be provided. 

• The addition of this new section 194IA for the deduction of TDS on Property would have put the buyer of the property through unneeded difficulty because he would have been required to apply for a TAN No. before buying any property. The government has added a new sub-section (3) to Section 194IA that stipulates that a person deducting TDS on Property must not necessarily have a TAN No. to alleviate any such burden.

• According to Notification No. 30/2016 from April 29, 2016, the TDS that the buyer deducted while paying the seller must be deposited within 30 days of the end of the month in which the deduction was made. For instance, if TDS was deducted in April, it must be deposited with the government by May 30. The other months are all the same as well.

• Form 26QB, which must be presented at the time of payment, must contain all information pertaining to the transaction and TDS on the Property. Details in this form can only be provided online through the following link and cannot be provided manually.

• The buyer of the property must also give the seller of the property Form 16B in relation to the TDS deducted and deposited with the government after submitting the TDS. After 15 days from the end of the month in which the payment has been made, Form 16B may be downloaded from the website of the Centralized Processing Cell of TDS (CPC-TDS), which is located at www.tdscpc.gov.in. 

POINTS THE PROPERTY BUYER SHOULD KEEP IN MIND INCLUDE: 

• Depending on the date of payment or credit to the seller, deduct tax at a rate of 1% per cent from the selling consideration. 

• Obtain the seller's Permanent Account Number (PAN) and cross-check it against the original PAN card. 

• PAN of both the seller and the buyer must be provided in the online form in order to provide information about the sale transaction. 

• There is no online option for correcting inaccuracies, so be careful while quoting the PAN or other details in the online Form. You must contact the Income Tax Department for the purpose of correction.

REMINDERS FOR THE PROPERTY SELLER INCLUDE THE FOLLOWING: 

• Give your PAN to the buyer so they can give your TDS information to the income tax department. 

• Verify the Purchaser’s taxes deducted in your Form 26AS Annual Tax Statement.