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Prices of under-construction apartments to rise after GST roll out

Prices of under-construction apartments may rise by up to 5-10% when the Goods and Services Tax (GST) is rolled out. But, prices of completed apartments will not be affected as GST will not be applicable there.

If you have already bought a flat but the entire payment has not been made, you will be charged tax at the GST rate on the remaining amount to be paid, which is likely to be between 12% and 18%.

Amit Kumar Sarkar, partner in tax consultancy firm Grant Thornton, said the rise in prices will be due to an increase in the net tax incidence for apartments under construction.

In the new tax regime, if one books an apartment which is under construction, the cost of the apartment will be treated as value of services that the developer is going to deliver to you and will be taxed at the prevailing GST rate.

Under the present regime, under-construction apartments are treated as work contracts in which the land, goods such as cement and steel, and services are involved. Therefore, to tax its services portion only, an abatement of 60% of the total cost is allowed.

So, the net service tax liability is calculated at 15% on 40% of the total cost, which works out to be 6% of total cost. Besides this, a buyer also has to pay 1% VAT (value-added tax).

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