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    GST on Sale of Commercial Property:  10 Things to Know

    • 5 min read
    • Last Modified Date: August 23, 2023
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    What is GST on sale of commercial property? Navigating the realm of commercial property transactions involves a multifaceted understanding of various elements, one of which is the Goods and Services Tax or GST. In this guide, we delve into “GST on Sale of Commercial Property: 10 Things to Know,” offering insights that can illuminate the intricate landscape of GST implications, ensuring you’re well-equipped to make informed decisions in the realm of commercial property transactions.

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    10 Things to Know about GST on Sale of Commercial Property

    1.What is GST?

    • Goods and Services Tax, commonly known as GST, is an indirect tax. It gets imposed on the provision of goods and services within India. 
    • The fundamental goal of GST is to streamline and simplify the taxation mechanism by consolidating diverse taxes into a unified framework. 
    • It encompasses Central GST (CGST) administered by the central government, State GST (SGST) managed by state governments, and an Integrated GST (IGST) applicable for transactions between states.

    2.How does GST Impact the Real Estate Sector?

    • Enhanced Compliance: The consolidation of various indirect taxes under GST fosters greater compliance, bolstering transparency and curbing tax evasion.
    • Reduced Tax Burden: The integration of diverse taxes into a single levy lessens the tax load, rendering properties more accessible and affordable to potential buyers.
    • Propelling Affordable Housing: The real estate market for affordable housing experiences a surge. GST levies a lower tax rate on the sale of such properties, amplifying supply and accessibility for economically weaker segments of society.
    • Varied Impact on Residential and Commercial Properties: The GST on residential property sales has witnessed a decrease, yielding manifold benefits for buyers. Conversely, the implementation of GST has led to an uptick in tax rates for commercial property sales.
    • Affordability Facet: Affordable housing acquires a favorable tax rate of 1%, directly benefitting purchasers.
    • Tax Revisions for Luxury Properties: Tax rates for luxury properties have been revised to 5%, resulting in an increased tax outlay for affluent buyers.
    • Construction Cost Escalation: The implementation of GST triggered an upswing in construction costs due to escalated tax rates on under-construction properties. This translated into an elevation in property prices.

    3.What does Property GST Mean?

    • When referring to property, GST signifies the tax levied upon the sale of immovable assets like buildings or land, encompassing both residential and commercial properties.
    • GST on sale of commercial property in India is subject to specific considerations. The GST rate on sale of commercial property is 18 percent. 
    • Also, the GST of under-construction commercial property is 12%.
    • Fully developed commercial properties or the resale of such properties get exempted from GST.
    • There is no GST on residential property sales or the sale of land devoid of any structures.

    4.Is there GST on Sale of Commercial Property?

    Is GST applicable on sale of commercial property? Yes. GST becomes applicable to the sale of commercial property solely in instances where the property has not obtained a completion certificate. So, GST is only levied on the sale of under-construction commercial properties.

    5.GST Rate on Sale of Commercial Immovable Property

    • For any immovable commercial property being sold, the transaction is subject to a GST rate. 
    • Specifically, the GST on sale of commercial immovable property or GST on sale of under-construction commercial property is subject to 12% tax.
    • This tax obligation falls upon the developer or builder responsible for the commercial property, who is mandated to remit the tax to the government.
    • Fully developed commercial properties or the resale of such properties get exempted from GST. This translates to the fact that if you purchase a fully constructed or resale commercial property, you are not liable to pay GST for the transaction.

    5.Regulations on GST on Sale of Commercial Property Transactions

    • Wide Applicability: GST extends its reach to encompass all types of immovable properties, including both residential and commercial properties.
    • Builder’s Responsibility: Developers engaged in constructing commercial properties are mandated to register for GST and uphold regular filing of GST returns with governmental authorities.
    • Rental Taxation: The property’s rental income typically attracts GST at an 18% rate. Additionally, individuals paying rent must also factor in a 10% income tax deduction if the annual rent surpasses 2.4 lakhs.
    • Under-Construction or New Properties: According to the revised 2022 update, the GST rate applicable to the sale of under-construction or recently constructed commercial properties stands at 12%.
    • Exemption for Fully Constructed or Resale Properties: Fully developed commercial properties or those being resold get exempted from GST implications.
    • Input Tax Credit for Developers: Builders or developers of commercial properties are entitled to claim an input tax credit (ITC) on the GST paid for goods and services utilized during the property’s construction.

    6.Is there GST on Commercial Property Construction?

    Absolutely, there is GST on the construction of commercial property. The current GST rate for commercial property construction services stands at 18%, encompassing both Central GST (CGST) and State GST (SGST).

    7.GST Rate on Commercial Property Transactions in India

    When it comes to the acquisition or disposal of a commercial property, the application of GST hinges on the property’s attributes and its geographical location.

    Commercial Property TypeGST Rate on Commercial Property
    GST on different commercial properties12 percent
    GST on Commercial Properties Within Residential Real Estate Developments5 percent 

    8.Is GST on Commercial Property Transactions Refundable?

    No, GST paid for property purchases or construction is non-refundable. It is generally considered a liability and does not typically qualify for a refund.

    But, GST on commercial property transactions is refundable for certain cases only.

    9.Cases where GST on Commercial Property Transactions is Refundable 

    • If the property is sold to a non-Indian buyer from abroad, the GST amount might be eligible for a refund.
    • Input Tax Credit (ITC) can be claimed by developers and builders. They can claim ITC for raw materials and services used in construction. If excess ITC accumulates, it could be eligible for a refund.
    • When a commercial property is sold as part of a going concern, bundled with the sale of a business, it might be exempt from GST.
    • Certain commercial properties, such as medical facilities or those owned by charitable organizations, could be eligible for GST-free or zero-rated supplies. In such instances, GST paid during property purchase or construction could potentially be eligible for a refund.

    Bottom Line

    It remains paramount to recognize that the GST framework is in a constant state of evolution, making the vigilance of any alterations or advancements imperative for achieving business triumph. Ultimately, comprehending the intricacies of GST on sale of commercial property is merely a fraction of the expansive realm of finance.

    In India, Assetmonk stands out as a distinctive alternative investment platform, offering a wide spectrum of profitable avenues for discerning investors. Among these opportunities lie the realm of commercial real estate structured debt and other meticulously selected alternative investments. With a minimum investment commitment of 10 lakhs, Assetmonk provides exclusive and tailored investment choices to its esteemed clientele. Opting for Assetmonk as a strategic investment partner grants investors the opportunity to attain an impressive Internal Rate of Return (IRR) of 18 percent. 

    Related Articles

    1. GST on rental- Everything you should know!
    2. Understanding GST Rules for Various Real Estate Asset Categories.
    3. Learn To Calculate GST On Real Estate Property Purchase In Real Time.

    FAQs

    Q1. What is GST on sale of commercial property?

    A. When referring to property, GST signifies the tax levied upon the sale of immovable assets like buildings or land, encompassing both residential and commercial properties. The GST rate on sale of commercial property is 18 percent. Also, the GST on sale of under-construction commercial property is 12 percent. 

    Q2. What is the GST rate on sale of commercial property?

    A. The GST rate on sale of commercial property in India is 18 percent.

    Q3. Is GST applicable on sale of commercial property?

    A. Yes. GST becomes applicable to the sale of commercial property solely in instances where the property has not obtained a completion certificate, indicating that it remains under construction.

    Q4. Is GST on property refundable?

    A. No, GST paid for property purchases or construction is non-refundable. It is generally considered a liability and does not typically qualify for a refund. But, there are certain cases where it is refundable.

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