One of many taxes a buyer of property has to pay is the Goods and Services Tax, or GST on flats and apartments. In this guide, we’ll look at how the GST affects real estate in general and home buyers specifically.
In India, buyers of under-construction properties, such as flats and apartments, must pay the Goods and Services Tax (GST) at a rate of 1% for affordable housing and 5% for non-affordable housing. GST is also charged on the purchase of developable plots in real estate.
Buildings were subject to a variety of state and central taxes before the GST became effective in 2017. While these taxes were a burden to developers, they were not available to builders as a deduction from output taxes.
Before the GST came into force, developers had to pay several taxes, including:
To simulate demand amid a prolonged slowdown, the government has substantially lowered its GST rate on property transactions. Experts predict that this could lower buyers’ pay-outs by 4%-6% on the overall purchase.
Property type | GST rate till March 2019 | GST rate from April 2019 |
Affordable housing* | 8% with ITC | 1% without ITC |
Non-affordable housing | 12% with ITC | 5% without ITC |
Builders will be able to pick between the old and new rates by May 20, 2019, for ongoing projects, regardless of the new tax rate without input tax credit (ITC). The government’s decision to offer the ITC only for projects that were complete as of March 31, 2019, came after concerns were raised by the developer community.
GST Rate on Under Constructed Residential Houses Recorded | ||
Particulars | Affordable House | Other House |
Present GST Rate | 8% | 12% |
Rate wef 01.04.2019 | 1% | 5% |
Area: Metro city | Up to 60 sqm | More than 60 sqm |
Area: Non-Metro city | Up to 90 sqm | More than 90 sqm |
Value | Up to 45 Lakh | More than 45 Lakh |
The GST law differs from the previous country’s tax system due to its ITC system. The developer pays tax on goods and services several times throughout a housing project. Under the GST regime, the builder would be entitled to a credit for input taxes paid when he pays his output tax.
Example
A builder has to pay Rs 35,000 as an output tax on his final product after already paying Rs 29,000 as input tax for materials such as steel, cement, paint, etc. In this scenario, he would have to pay only Rs 6,000 as output tax, after adjusting the input tax charge.
We show you how to calculate GST for flats’ purchase in the affordable housing segment, before and after the April 1, 2019 rate change:
Affordable housing | GST on affordable housing before April 1, 2019 | GST on affordable housing after April 1, 2019 |
Property cost per sq ft | Rs 3,800 | Rs 3,800 |
GST rate on flat purchase | 8% | 1% |
GST | Rs 304 | Rs 38 |
ITC benefit for material cost of Rs 1,500 at 18% | Rs 270 | Not applicable |
Total | Rs 4,374 | Rs 3,838 |
From April 1, 2019, affordable residential apartments in India will be subject to 1% GST without ITC, while other residential properties will be subject to 5% GST without ITC.
Due to the GST rate cut, the GST on under-construction properties is 1%, while for non-affordable units it is 5%, without the credit for input tax.
GST is categorized into three types in India:
The technical terms related to the Real Estate industries might be a bit difficult for a layman to comprehend. So, Roodland India has extended its hands to solve your problems related to Real Estate.
Our expert guidance can help solve the problem of yours in a unique and promising way.
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