Input Tax Credit for Real Estate Sector: A Potential Game-Changer for Homebuyers
Allowing builders to claim input tax credit (ITC) could lead to lower property prices and alleviate the financial crunch in the real estate sector.
Real EstateInput Tax CreditGstTaxationHomebuyersReal EstateSep 24, 2024
The GoM has also been urged to rethink its policy towards construction services used for the development of hotels, homestays, and warehouses. A favourable move to permit ITC on goods and services used in construction could alleviate the current financial crunch, the industry has told the GoM.
The GST on cement and steel is 28% and 18%, respectively, and the tax outgo has spiked along with the rise in these commodity prices. Developers are not able to claim GST credits on input items, which leads to an escalation in construction costs. Further, it also negates the purpose of GST, which was to remove the cascading impact of taxes.
Frequently Asked Questions
What is input tax credit (ITC) in the context of real estate?
Input tax credit (ITC) refers to the credit that developers can claim on the taxes paid on input goods and services used in construction.
How will allowing ITC benefit the real estate sector?
Allowing ITC will reduce the tax burden on developers, which could lead to lower property prices and alleviate the financial crunch in the sector.
What is the current GST rate on cement and steel?
The current GST rate on cement is 28% and on steel is 18%.
What is the issue with the reverse charge mechanism on unsold units at occupancy?
The rate of 5% on the reverse charge mechanism on unsold units at occupancy is harsh for builders who are unable to sell the units in a joint development agreement.
What is the GCCI's recommendation on long-term leases?
The GCCI has recommended that long-term leases for more than 30 years should not be viewed as a separate transaction as it is similar to the sale of land.
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