Builders claim that the 7.5% increase (12% - 4.5%) in tax post GST is because they will not be able to claim any credit for taxes paid on inputs bought before July 1

If you are paying for your house in installments to the builder you may end up paying 12% GST on payments due from July 1 onwards, instead of 4.5% service tax that you paid on installments till June 30.

Similarly, if you plan to buy a house after July 1 in a project that is complete or nearing completion, you will have to pay tax at the rate of 12% on the entire amount.

Builders claim that the 7.5% increase (12% - 4.5%) in tax post GST is because they will not be able to claim any credit for taxes paid on inputs bought before July 1.

For projects that are nearing completion or complete, most buyers would have paid 90-to-95% of the price, whether they are on a construction-linked or a down payment plan. In such cases the burden of higher tax will only be on the remaining 5 to 10% amount. After July 1, any invoice issued by the builder will attract 12% GST. Many developers have already issued letters to buyers asking them to be ready to pay higher taxes on the remaining amount.

Suppose, a buyer has bought a flat for Rs 1 crore earlier this year and has paid Rs 20 lakh so far with 4.5% service tax.

On remaining Rs 80 lakh, 12% GST will have to paid, as construction progresses. The tax liability will jump from Rs 3.6 lakh (4.5% of Rs 80 lakh, under pre-GST) to Rs 9.6 lakh (12%).

Suresh N Rohira, partner, Grant Thornton, said the government and developers should find a way to ensure that the pass through of benefit happens. But no mechanism has been worked out as yet.

Getamber Anand, chairman of real estate industry body Credai, said developers are looking to develop a mechanism to pass on benefits of input tax credit. “We are ready to share the benefits with the buyers of ongoing projects.”