How Can GST Affect You?

Sujan Afi S

Introduction

The Government of India has introduced Goods and Services Tax, or GST in the year 2017 for simplification of tax services in the country. Like many other sectors, the real estate sector is also influenced by the implication of GST. The homebuyer, as well as the developer, are affected by the implication of GST.

The home buyers or investors need to pay the GST for under-construction properties at the rate of 1% for affordable housing and 5% for non-affordable housing. GST is even applicable for developable plots.

Before the implementation of GST both the developers and buyers had to pay some central and state taxes, which in many cases, increased the construction as well as the purchase cost of the property. But after the implementation of GST, the tax system got quite easier in the real estate sector. Along with that, several central and state taxes got subsumed also. Let’s have a look at them. 

Central taxes

  1. Excise Duty
  2. Customs Duty
  3. Special Additional Duty of Customs
  4. Service Tax
  5. Central Sales Tax
  6. Central surcharge and cess on supply of goods and services

State taxes

  1. State Value Added Tax
  2. Entertainment Tax
  3. Luxury Tax
  4. State Excise Duty
  5. State surcharge and cess on supply of goods and services
  6. Taxes on advertisement
  7. Purchase tax
  8. Taxes on lotteries, gambling and betting

GST rates on real estate

The Government of India reduced the GST rate significantly after it came into force in July 2017 to increase demand in the real estate sector. The new analysis suggests that it could reduce the home buyers’ or investors’ payout by 4% to 6% on the total purchase (believed by real estate experts).

GST rate for purchasing flats in 2021

Type of PropertyGST rate till March 2019GST rate from April 2019
Affordable Housing8% with ITC1% without ITC
Non-Affordable Housing12% with ITC5% without ITC

GST on affordable housing property

Affordable housingGST on affordable housing before April 1, 2019GST on affordable housing after April 1, 2019
Property cost per sq ftRs 3,500Rs 3,500
GST rate on flat purchase8%1%
GSTRs 280Rs 35
ITC benefit for material cost of Rs 1,500 at 18%Rs 270Not applicable
TotalRs 3,510Rs 3, 553

GST on luxury property

Luxury housingBefore April 1, 2019After April 1, 2019
Property cost per sq ftRs 7,000Rs 7,000
GST rate on flat purchase12%5%
GSTRs 840Rs 350
ITC benefit for material cost of Rs 13,000 at an average of 15%Rs 126Not applicable
TotalRs 7,714Rs 7,350

Input tax credit (ITC) under GST

The concept of Input tax credit or ITC system differs significantly from the tax systems in the real estate sector after the launch of GST. ITC system is considered a unique characteristic of the GST system. The builder or developer pays taxes several times during the phase of construction and after construction. He/she needs to pay the taxes on finishing the project or house or building; then he will receive an input tax credit.

Let’s take an example. 

If a builder has already paid Rs 21000 during the time of construction for buying various construction materials and the final GST value on finishing the project is Rs 25,000, then at the final stage, he needs to pay (25000 – 21000) = Rs 4,000 only!

GST for government housing scheme

Various government housing schemes like Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the Rajiv Awas Yojana (RAY), the Pradhan Mantri Awas Yojana (PMAY) and housing schemes of state governments require to pay only 1% GST under the new regime.

GST on home loan

GST is not applicable on the repayment of home loans but the bank charges GST on various services like processing fees, technical valuation fees, legal fees etc.

GST for rent

The landlord is not required to pay GST if the property is let out for the residential purpose. But if the residential property is used for business purposes and the rent amount exceeds Rs 20 lakhs per year then the landlord has to pay GST at the rate of 18%. In this case, the landlord has to register himself/herself for paying GST on rental income. 

Conclusion 

The introduction of GST in the real estate sector has brought many advantages for developers as well as buyers. The GST makes the tax system easier and more transparent. Therefore, you can save yourself from fraud tax cases. You need to go through the updated regime of GST rates before buying a house as it changes several times. Well, I hope I could update you regarding GST. Nevertheless, you can always send your queries and concerns to on info@roodland.com. We have a dedicated team of experts ready to guide you and answer all your queries.

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