Landowner share flat buyer in JD- Do I need to pay GST after receiving OC?

Ans: There are certain factors on which the applicability of GST depends on the services provided by the contractor such as-

• If the construction is for your own only self residence and not for business purposes, then you generally do not need to pay GST on the contractor's services, even if you took a home loan.

• If the construction is for commercial purposes or you intend to sell the property, GST will usually be applicable on the contractor's services at the standard rate of 18%.

• If the contract involves the contractor providing both labour and materials, it's considered a "works contract".

• GST is applicable on the entire contract value (excluding land cost) at the appropriate rate mentioned above.

• If the contract involves the contractor only providing labour, and you separately buy the materials, it's considered a "labour contract".

• No GST is payable on the labour charges under the current regulations.

Note- Taking a loan for construction wouldn't impact the applicability of GST on the contractor's services.

There are various other clauses in the GST part; for more clarity, please connect with a legal advisor.

Ans: You're right to be questioning the GST implications in this situation. Here's a breakdown of your queries:

GST Rate on Development Services: The GST rate for construction services on an immovable property (land + building) is generally 5%. However, there's an exception for affordable housing projects, where the rate is 1%.

Sharing of GST by Landowners and Purchasers: Since the sale deed is directly between you (purchaser) and the landowner (vendor), you are not obligated to pay 1/6th of the GST paid by the landowner to the developer. You'll only pay GST on the value mentioned in your sale deed.

GST on Land Cost: The developer cannot demand GST on the entire cost of the flat, including the undivided land share. GST applies to the value of services rendered (construction) and not the land itself.

GST on Ready-to-Move Flats: The GST rate of 1% for ready-to-move flats only applies to completed projects where the occupancy certificate has been issued. In your case, it's an under-construction project, so the 5% rate applies.

Here's how the GST should ideally work in your scenario:

The developer pays GST to the government on his service charges for constructing the flats (5% of his construction cost).
The landowner pays stamp duty and registration charges on the land value mentioned in your sale deed.
You, the purchaser, pay GST to the developer on the value mentioned in your sale deed (excluding land cost) at the rate of 5% (assuming it's not an affordable housing project).
Recommendations:

Ask the developer to provide a breakup of the total cost, clearly mentioning the land cost and construction service charges.
Pay GST only on the construction service charges mentioned in your sale deed.
If the developer insists on including GST on the land cost, consult a tax advisor to understand your rights and explore further options.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in