India’s GST & Real Estate: Impact Of GST On Real Estate And Home Buyers In India

GST

If you are on your quest to finding yourself the best property that suits your budget, as well as your dream home qualities, GST or the Goods and Services tax, is one of the taxes we want you to keep in consideration while you establish yourself a budget. GST has often been a great concern for prospect flat owners for the kind of amendments that the government has continuously made in the norms of GST since its introduction back in July 2017.

Here’s everything you will ever need to understand the impact of GST on real estate as well as home buyers in India!

Quick Recap: What Taxes Were Paid By Home Buyers In India Before GST Implementation?

Until GST was introduced in 2017,  a number of state and central taxes had to be paid by home buyers to real estate developers through the course of the construction of the project. Some examples of these various taxes included  Value Added Tax (VAT), Entry Tax, Central Excise, LBT, Service Tax, Octroi, etc. Most of these taxes increased as the cost of the project increased, however, no credit against the tax was offered to the builders against the output liability. 

Since it would be difficult for a layman to understand the meaning of all these taxes in-depth, developers had an upper hand and usually transferred the weight of these taxes to home buyers.

Present Day Scenario: What Taxes Are Paid By Home Buyers In India After GST Implementation?

GST has been introduced in India as a tax method that encompasses multiple indirect taxes as one single tax called the GST. Though GST for real estate was introduced at a right high price point, it was eventually reduced in 2019 in the pursuit of making properties more affordable for all Indians and to achieve the ‘Housing for All by 2022’ goal set by the Indian government.

The present GST rate on real estate in India after the revision in 2019

Property type GST rate till March 2019 Revised GST rate from April 2019
Affordable housing 8% with an input tax credit (ITC) 1% without an input tax credit (ITC)
Non-affordable housing 12% with an input tax credit (ITC) 5% without an input tax credit (ITC)

It should be noted that with the introduction of the revised rates, the government offered all builders a one-time chance to pick between the old and the new rates by May 20, 2019 – for all ongoing projects.

What Is The Input Tax credit (ITC) Under GST?

You may now naturally be wondering what does ITC or an Input Tax Credit mean. As you may be aware, a developer pays multiple taxes on a project by the time of its completion, and on those lines, ITC is a system introduced under GST which gives the builder an input tax credit when he pays his output tax.

Here’s an example to help you understand ITC or the Input Tax Credit better: Let’s assume Brigade builders pay Rs. 50,000 in taxes on the development of a community building in Bangalore. Now, of this 50,000 rupees, Brigade claims that they have already paid 20,000 as input tax at the time of purchase of raw materials like cement and bricks. Hence, eventually, Brigade will only have to pay the remainder of Rs. 30,000 as the output tax, after adjusting the input tax credit.

What Is Affordable and Non-Affordable Housing As Per GST?

Affordable housing under GST in India has been defined by the government as housing units as follows-

In non-metropolitan cities: A house of up to Rs 45 lakhs and has up to 90 sq meters of carpet area

In a metropolitan Indian city: A house of up to Rs 45 lakhs and has up to 60 sq meters of carpet area. It should be noted that Delhi-National Capital Region, Bengaluru, Chennai, Hyderabad, the Mumbai-Mumbai Metropolitan Region, and Kolkata are defined as metropolitan Indian cities.

Any house that costs more than 45 lakhs and measures more than 90 sq in non-metropolitan cities OR, costs more than 45 lakhs and measures more than 60 sq in metropolitan cities falls in the non-affordable housing category under GST.

How To Calculate GST On Affordable And Non-Affordable Housing In India?

As a result of the introduction of GST in India, house owners and prospective buyers now do not have to worry about understanding several taxes as one single tax (as GST) offers clarity about their tax liability.

Here’s an example of how to calculate GST on flat that fall under the affordable housing category:

Affordable housingGST on affordable housing before April 1, 2019GST on affordable housing after April 1, 2019
Property cost per sq ftRs 2,000 (assumption)Rs 2,000
GST rate on flat purchase8%1%
GST+ Rs 160+Rs 20
ITC benefit for the material cost of Rs 2,500 at 18%– Rs 450Not applicable
TotalRs 1,710Rs 2,020

Luxury/ Non-affordable housing: The GST rates help save buyers of luxury properties more than ever in the form of reduced taxes. Here’s an example of how to calculate GST on flat that fall under the affordable housing category-

Luxury housing GST on luxury / non-affordable housing before April 1, 2019 GST on luxury / non-affordable  housing after April 1, 2019
Property cost per sq ft Rs 10,000 (assumption) Rs 10,000
GST rate on flat purchase 12% 5%
GST + Rs 1,200 +Rs 500
ITC benefit for the material cost of Rs 22,000 at an average of 15% -Rs 3,300 Not applicable
Total Rs 7,900 Rs 10,500

What Is The Impact of GST On Maintenance Charges for Housing Societies In India?

Flat owners in India are liable to pay a flat rate of 18% GST on their residential property, given they pay at least Rs. 7,500 in the form of maintenance charge to the housing society. In other words, housing societies that charge Rs 7,500 per month per flat, have to pay an additional 18% GST on the entire amount. However, housing societies generating an annual turnover of less than Rs 20 lakhs are exempted from paying the GST.

It should also be noted that housing societies are allowed to claim ITC or the input tax credit on the GST paid on capital goods (for example, generators, water pumps, etc.), maintenance goods (pipes, hardware fittings, etc.), and on input services (salaries paid for repair and maintenance services, etc.)

What GST Do Landowners Pay On The Received Rent Income?

Landowners in India are not liable to pay any GST on their real estate rental income (in the form of rent), as long as the property is let out for residential or housing purposes. For landowners who rent their property for business purposes, an 18% GST  is charged on the total rental income, given the annual rent income exceeds Rs 20 lakhs. Landowners further are not liable to pay any GST on the electricity charges recovered from tenants- provided the electricity charges are not included in the value of rent while computing the GST. In other words, it should be clearly mentioned in the rental agreement that the tenants would pay their monthly electricity bill charges on actuals, apart from paying the rent.

What Is The Impact of GST On Home Loans In India?

The government of India does not mandate any GST on home loan repayment for the borrower. However, banks and financial institutions may offer several ‘services’ as a part of their home loan disbursement and since services are charged under GST, the bank would charge GST on the processing fee, technical valuation fee, and legal fee.

What Is The Impact of GST On Government Housing Schemes In India?

The government has defined a set rate of only 1% GST for houses under government-led mega housing projects meant for the common man. Some of such schemes include the Jawaharlal Nehru National Urban Renewal Mission, the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana, and other individual housing schemes of state governments.

What Is The Impact of GST On Stamp Duty And House Registration Charges In India?

Several protests have been made to voice against stamp duty and registration charges on property and pleas made to discontinue these charges. However, no solid response has been given by the Indian government and property sales in India continue to charge stamp duty and registration charges. Stamp duty in India is charged in the range of 5%-10%, whereas the registration charge is either 1% of the property value or a state-set standard fee.

In terms of GST, however, no GST on the registration charges is to be paid while registering real estate in India.

Final Thoughts: Could We Expect a GST Cut On Real Estate In 2021?

Most of the Indian builders and real estate developers are currently offering a GST-free deal on real estate to prospective buyers in order to boost property sales post-COVID. But again, since GST on affordable housing is already at the lowest level possible, it does not really offer a huge relief, and neither does it have a scope of going down further.

Luxury or non-affordable housing, on the other hand, has been in low demand because of the financial impact of the pandemic, and hence, it will only make sense for builders to continuously offer GST relaxation on real estate of this segment.

FAQs: Impact Of GST On Real Estate And Home Buyers In India

1. What is the effective GST on commercial real estate property in India?

The effective GST on commercial property in India currently stands at 12%

2. Is there a GST applicable to the purchase of real estate plots in India?

No, GST is not applicable on the purchase of plots in India and neither on ready-to-move-in flats in India. This is also why most ready-to-move flats are priced higher than under-construction properties; it is a way for builders to mask the GST costs that can't be officially charged.

3. How many housing taxes fall under GST?

GST, since its introduction, has subsumed at least a dozen housing and property taxes under one name.

4. Can you claim GST on house purchases in India?

If a property is under construction, GST cannot be waived off and it cannot be claimed back. Whereas, in the case of a finished property, buyers are anyway not liable to pay any GST.

5. How does GST affect real estate?

The impact of GST on real taste is such that developers and builders are allowed to claim an Input Tax Credit (ITC) during the purchase of raw materials required during construction like cement, paint, bricks, etc. This is a positive impact since it avoids the tax on tax position and the tax GST can be claimed back by the builders after the finishing of the property.
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