GST on Apartments: Applicability and Compliance

Introduction

Goods and Services Tax (GST) was introduced to simplify the indirect taxation system and create uniformity in the tax structure. In the realm of real estate, GST has significantly impacted various aspects, including the construction, sale, rental, and maintenance of residential apartments. With GST now applicable to many areas of real estate transactions, apartment owners, housing societies, and property developers need to understand the tax structure to comply with the regulations and optimize their financial dealings.

The introduction of GST has made it essential for all stakeholders to understand the correct implementation of the tax laws. From under-construction property transactions to GST on apartment maintenance charges, the rules can be complex. This comprehensive guide is designed to explain the applicability of GST on apartments, its impact on property transactions, the conditions under which GST applies to maintenance charges, and the key GST compliance requirements for housing societies and apartment owners.

By understanding how GST affects property transactions, maintenance charges, and services, you can avoid common pitfalls and ensure that all your tax obligations are met.

Is GST Applicable to Residential Apartments?

Understanding GST Applicability on Apartments

GST on apartments is applicable to several aspects of apartment ownership and real estate transactions, but the scope of its application depends on various factors, including whether the property is under construction, the nature of the services being provided, and whether the apartment has an occupation certificate. Let’s break down the different scenarios where GST applies:

1. Under-Construction Apartments
   
   • GST on apartments is applicable to under-construction properties, which includes apartments that are still being built and do not yet have an occupation certificate. This means that the buyer pays GST on the price of the apartment, which is considered a supply of service.
   • The GST rate for under-construction apartments is 5% for standard apartments and 1% for affordable housing. It is important to note that GST is calculated on the value of the construction excluding land cost, which is considered to be one-third of the property’s total value.
2. Completed Apartments
   
   • For completed, ready-to-move-in apartments, GST does not apply, provided an occupation certificate (OC) has been issued. The issuance of the occupation certificate signifies that the property is ready for use and no longer qualifies as an under-construction property.
3. Maintenance Charges by RWAs
   
   • GST is applicable on maintenance charges levied by Resident Welfare Associations (RWAs) or housing societies. However, the applicability depends on the amount being charged:
     • If the monthly maintenance charge exceeds ₹7,500 per apartment, GST at 18% is applicable on the excess amount.
     • If the charges are lower than ₹7,500, there is no GST.

Example:

• Under-construction property: Let’s say you are purchasing an under-construction apartment for ₹60 lakh. With land excluded (₹20 lakh), GST would apply to ₹40 lakh at 5%, resulting in ₹2 lakh in GST charges.
• Maintenance charges: If the monthly maintenance fee is ₹8,000, GST at 18% would amount to ₹1,440.

GST on Apartment Maintenance Charges

When is GST Applicable on Maintenance Charges?

1. Threshold Limit for Maintenance Charges
   
   • As per GST regulations, maintenance charges are subject to GST only when they exceed ₹7,500 per apartment per month. If the monthly maintenance charge is ₹7,500 or lower, no GST applies.
2. Rate of GST
   
   • The GST rate on maintenance charges for apartment complexes and societies is 18%. The maintenance charges typically cover communal services like cleaning, security, garbage disposal, water supply, and repair of common facilities such as lifts or staircases.
3. GST Registration for RWAs
   
   • If the Resident Welfare Association (RWA) or housing society’s annual turnover exceeds ₹20 lakh, it is mandatory for the society to register for GST.
   • Registered RWAs can charge GST on maintenance fees, and importantly, they can also claim Input Tax Credit (ITC) on expenses related to maintenance services (e.g., services from security agencies, housekeeping, or plumbing services).
4. Input Tax Credit (ITC)
   
   • RWAs registered under GST can claim ITC on services such as housekeeping, security, gardening, and maintenance of common areas. This helps to reduce the overall tax burden on residents by offsetting the GST paid on expenses against the GST collected on maintenance charges.

Example:

• If your RWA charges ₹8,000 per flat as maintenance fees, the GST charge would be ₹1,440 (18% of ₹8,000). If the RWA is registered for GST, it can claim ITC on expenses like security services, repairs, or electricity for common areas.

GST on Buying and Selling Apartments

Impact of GST on Apartment Transactions

1. Under-Construction Apartments
   
   • When you buy an under-construction apartment, GST is applicable. The GST rate depends on the classification of the property:
     • 5% GST applies to standard residential apartments.
     • 1% GST applies to affordable housing (as per the criteria set by the government).
2. Completed Apartments
   
   • No GST is applicable on the sale of completed apartments once the occupation certificate has been issued. A completed apartment is considered a finished product and no longer qualifies for GST treatment under the supply of service.
3. Land Cost Deduction
   
   • GST is not levied on the land portion of the property. The land cost is assumed to be one-third of the total property value, and GST is calculated on the remaining two-thirds, which constitutes the construction cost.

Example Calculation:

• Under-construction property:
  • If the total price of an apartment is ₹60 lakh, then the land cost would be ₹20 lakh (one-third). The GST would apply to the construction portion of ₹40 lakh, and at a rate of 5%, it would result in ₹2 lakh in GST.

GST Registration for Apartment Associations

Who Needs to Register for GST?

Apartment associations, such as Resident Welfare Associations (RWAs), are required to register for GST based on their annual turnover and the nature of services provided:

1. Mandatory Registration
   
   • If the RWA’s total annual turnover from maintenance charges and other taxable services exceeds ₹20 lakh, GST registration becomes mandatory.
2. Voluntary Registration
   
   • Even if the turnover is less than ₹20 lakh, RWAs may choose to voluntarily register for GST to avail themselves of the benefits of claiming Input Tax Credit (ITC) and passing on the benefits to residents.
3. Filing GST Returns
   
   • Registered RWAs are required to file regular GST returns and remit the taxes collected from residents. Failure to file returns on time can result in penalties and interest charges.

Common GST Compliance Issues for Housing Societies

Key Compliance Issues:

1. Incorrect GST Application on Charges
   
   • Many housing societies mistakenly apply GST on all maintenance charges, even when the charges are below the ₹7,500 threshold, which can lead to legal issues and excess tax payments.
2. Failure to Claim ITC
   
   • Some housing societies fail to claim ITC on eligible expenses like repairs and security services, leading to an unnecessary increase in the tax burden.
3. Delays in Filing GST Returns
   
   • Many housing societies and apartment associations miss GST return filing deadlines, incurring penalties and interest on unpaid taxes.

Common Mistakes to Avoid

• Applying GST on maintenance charges below ₹7,500.
• Not claiming ITC for eligible expenses.
• Missing GST return filing deadlines.
• Not registering for GST when required.

Here’s a detailed explanation of each of the common mistakes to avoid when it comes to Goods and Services Tax (GST):

1. Applying GST on maintenance charges below ₹7,500:

Mistake: A common mistake is applying GST on maintenance charges that are below ₹7,500 per month.

Why it’s a mistake: According to GST law, residential complexes or societies with monthly maintenance charges up to ₹7,500 per month (per member) are exempt from GST. This means that if the charges do not exceed ₹7,500, there’s no GST applicable.

What to do: Ensure that you only apply GST on maintenance charges if the amount exceeds ₹7,500 per month. If it’s below this threshold, GST should not be charged.

2. Not claiming Input Tax Credit (ITC) for eligible expenses:

Mistake: Businesses may fail to claim Input Tax Credit (ITC) for eligible expenses. ITC allows businesses to claim the tax paid on purchases or services used in their business operations, which reduces the amount of GST they need to pay on their sales.

Why it’s a mistake: Not claiming ITC when eligible results in higher costs for the business, as the GST paid on inputs becomes an additional expense instead of being offset.

What to do: Ensure that you are aware of all eligible purchases (such as raw materials, services, capital goods) and claim ITC where applicable. ITC can be claimed on both goods and services used to make taxable supplies, but not on certain restricted items (like personal consumption goods or motor vehicles unless used for specific purposes).

3. Missing GST return filing deadlines:

Mistake: Missing the deadlines for filing GST returns is a common error that many businesses make.

Why it’s a mistake: GST returns must be filed regularly, typically monthly or quarterly, depending on the turnover of the business. Missing deadlines can lead to penalties, interest, and late fees. It also affects the smooth functioning of tax compliance.

What to do: Ensure that you track the due dates for filing GST returns (like GSTR-1, GSTR-3B, etc.) and file them on time. Use automated tools or GST software to keep track of deadlines and avoid any penalties. If you miss a deadline, try to file as soon as possible to minimize the penalty.

4. Not registering for GST when required:

Mistake: Some businesses do not register for GST even when they are required to do so under the law.

Why it’s a mistake: GST registration is mandatory for businesses whose turnover exceeds the prescribed threshold limit (₹40 lakhs for goods and ₹20 lakhs for services, depending on the state). Not registering when required can result in non-compliance with the law, leading to penalties, interest, and even legal action.

What to do: Regularly monitor your business turnover and determine whether you cross the GST threshold. If you do, ensure that you get registered for GST. Even if you are below the threshold, you might want to register voluntarily to claim ITC and benefit from other advantages.

Conclusion

GST plays a crucial role in the regulation of real estate transactions, maintenance charges, and property services. While GST does not apply to completed apartments with an occupation certificate, it is critical for apartment owners, buyers, and housing societies to understand when and how it applies. Adhering to the tax regulations ensures smooth transactions, efficient management of finances, and avoids potential legal complications.

For apartment owners and housing societies, understanding the details of GST is essential to ensure compliance and claim Input Tax Credits where eligible. Proper GST registration, timely filing of returns, and correct application of tax rates will help you avoid penalties and reduce the overall tax burden.

RegisterKaro is a trusted partner for GST compliance in the real estate sector. Our team of experts helps housing societies and apartment owners navigate the complexities of GST, ensuring smooth registration, return filing, and tax management. With our customized services, you can avoid mistakes, save on taxes, and ensure regulatory compliance.

Contact Us Today:
Email: support@registerkaro.in
Call: +91-8447746183

Frequently Asked Questions (FAQs)

1. Do I need to pay GST when selling my apartment?
   
   • No, GST is not applicable on completed apartments with an occupation certificate. GST applies only to under-construction properties.
2. Are apartment rentals subject to GST?
   
   • Residential rental income is exempt from GST, but commercial rentals attract an 18% GST.
3. Can apartment owners claim ITC on maintenance charges?
   
   • No, individual apartment owners cannot claim ITC. However, RWAs registered under GST can claim ITC on maintenance-related services.
4. What happens if my RWA does not register for GST?
   
   • If an RWA’s turnover exceeds ₹20 lakh and it fails to register for GST, it will face penalties, interest on unpaid dues, and legal action.
5. Is GST applicable on parking or clubhouse fees?
   
   • Yes, GST at 18% is applicable if the RWA charges fees for amenities like parking, gym, or clubhouse.
6. What GST rate applies to affordable housing?
   
   • Affordable housing is subject to 1% GST without Input Tax Credit.
7. How is GST calculated on under-construction properties?
   
   • GST is calculated on the construction cost (after excluding land cost, which is deemed to be one-third of the total price).
8. Do I need to register for GST if my turnover is below ₹20 lakh?
   
   • Registration is voluntary for RWAs with turnover below ₹20 lakh, but it allows you to claim ITC.
9. Can I claim ITC on my apartment’s maintenance costs?
   
   • Only the RWA can claim ITC for maintenance-related services, not individual apartment owners.
10. How do I know if my RWA should register for GST?
    
    • If your RWAs turnover exceeds ₹20 lakh in a year, it must register for GST.