Since the implementation of GST, the real estate industry in India has transformed, focusing on simplifying taxation. GST helps reduce the tax burden and increase transparency in property deals. This guide delves into GST on flat purchases in 2024, addressing under-construction flats, ready properties, affordable housing rates, and the registration process.
Table of Contents
What is the GST on Property in India?
GST on property in India primarily applies to under-construction properties, with a 5% rate for standard residential properties and a 1% rate for affordable housing, both without Input Tax Credit (ITC). Commercial properties are typically taxed at 12% with ITC benefits. Notably, GST does not apply to ready-to-move-in or completed properties, as these are classified as goods rather than services.
Introduced in 2017, the Goods and Services Tax (GST) simplified real estate taxation by replacing multiple taxes like VAT, service tax, and excise duty. The introduction of GST brought transparency and aimed to lower the tax burden on both property developers and buyers.
Related Read: GST Rates in India 2024
Current GST Rates on Property
The current GST rate for property purchases is 1% for affordable housing and 5% for non-affordable or luxury housing. These revised rates, effective from April 1, 2019, were introduced by the GST Council to promote affordable housing.
Unlike previous rates of 12% for non-affordable and 8% for affordable housing, buyers are no longer eligible for an input tax credit (ITC) under the current structure.
Key Impact of GST on Property Transactions
The GST structure reduces tax complexity, especially for buyers, though developers may face increased costs due to the removal of ITC on luxury projects. This streamlined tax system supports more affordable property ownership and aims to make the real estate market more transparent.
GST on Flat Purchase in 2024
1. GST on Under-Construction Flats
Typically, under-construction properties are taxed at 5% under the GST framework, though rates can differ based on the project type and location. Developers can claim an input tax credit (ITC) on materials and services used during construction; however, passing on this benefit to buyers isn’t mandatory. Buyers should clarify with developers about any ITC benefits offered, as it can affect the final cost of the property.
2. GST on Ready-to-Move Flats
- GST does not apply to ready-to-move properties with a valid occupancy certificate, as they are classified as completed goods, not services.
- If a flat lacks a completion certificate or has ongoing interior work, it could still be considered under construction and subject to GST.
3. GST on Registration of a Flat in India
- GST on property is not levied on the registration of completed flats in India. Properties with a valid Completion Certificate are exempt from GST.
- A Completion Certificate is a legal document issued by the local municipal or development authorities. It certifies that a building (flat or property) has been constructed as per the approved building plan and complies with local laws and regulations.
4. GST on New Flats
- The GST rate for new apartments under construction is set at 5%. The final cost of a new apartment can vary based on whether the developer passes the Input Tax Credit (ITC) benefit to the buyer.
- Developers can claim ITC on materials and labor used in construction, but passing this benefit to buyers is not mandatory.
Related Read: GST on Rent in India 2024
5. GST Rates for Flats Below ₹45 Lakhs
For flats priced below ₹45 lakhs, the GST rate is set at a reduced 1% without input tax credit (ITC), aimed at supporting the affordable housing sector and the government’s “Housing for All” initiative. This concessional rate applies to under-construction properties that meet specific size and price criteria for affordable housing.
To qualify for the 1% GST rate:
- In Metro Cities: The property must have a carpet area of up to 60 sq. m. and a maximum price of ₹45 lakhs.
- In Non-Metro Cities: The property can have a carpet area of up to 90 sq. m., with a maximum price of ₹45 lakhs.
These conditions are intended to make housing more accessible, especially in growing urban areas, and promote development within the affordable housing segment.
6. GST on Flat Purchase Above ₹50 Lakhs
For flats priced above ₹50 lakhs, which generally fall outside the affordable housing segment, the GST rate is set at 5%, without the benefit of input tax credit (ITC). This applies specifically to under-construction properties, as GST is not levied on completed or ready-to-move-in properties.
Key points to note for GST on high-value property purchases:
- 5% GST Rate: Applies uniformly to under-construction properties exceeding ₹45 lakhs, including those priced above ₹50 lakhs.
- No Input Tax Credit (ITC): Buyers do not receive ITC on properties under this rate, as developers are not required to pass on this benefit to buyers.
GST on Maintenance Fees for Housing Societies
GST applies to housing societies with an annual turnover above ₹20 lakh. If maintenance fees exceed ₹7,500 per month per unit, an 18% GST applies to the total amount. For instance, on a monthly fee of ₹9,000, GST will be charged on ₹9,000. Housing societies with turnover below ₹20 lakh are not liable to pay GST, and charges like water and property taxes are exempt.
Affordable Housing GST Rate in 2024
For affordable homes priced at ₹45 lakhs or less, the GST rate in 2024 is 1% without the option to claim ITC.
**Disclaimer: The GST rates mentioned above are subject to change as per government policies and regulations. These rates may differ depending on the property type, location, and other factors. It is recommended to consult with a tax professional or the relevant authorities for the most up-to-date information before making any property purchase.
Example Calculation of GST on Flat Purchase in India
To calculate the GST on a property purchase, you need to follow these steps:
STEP 1: Start by identifying the base price of the flat, excluding any additional fees or related costs.
STEP 2: Check the applicable GST rate for the property type
Respective GST Rates:
- For non-affordable housing, apply a 5% GST rate.
- For affordable housing, apply a 1% GST rate.
STEP 3: Calculate the GST amount by multiplying the base price by the applicable GST rate.
STEP 4: Add the calculated GST amount to the base price to determine the total purchase cost of the flat.
Example:
If the base price of an affordable housing flat is ₹40,00,000, the GST would be calculated as follows:
GST = ₹40,00,000 * 1% = ₹40,000.
Thus, the total cost of the flat would be ₹40,00,000 + ₹40,000 = ₹40,40,000.
Related Read: How to Pay GST on the GST Portal Online?
Input Tax Credit (ITC) on Property Purchase in India
1. ITC under GST enables businesses to offset the taxes they pay on purchases by deducting the GST already paid on inputs, thereby preventing the cascading of taxes and lowering costs.
2. The GST paid on construction inputs is eligible for ITC for property purchases. However, this benefit does not extend to residential properties for personal use and is primarily for commercial or rental properties.
3. If a developer purchases construction materials worth ₹15,00,000 with an 18% GST (₹2,70,000), they can claim an ITC of ₹2,70,000, reducing the GST liability when selling the property.
Impact of GST Rates on Flat Buyers
Here’s a breakdown of how GST affects flat buyers:
1. GST on Under-Construction Flats
GST is applicable on under-construction flats at 1% for affordable housing and 5% for non-affordable properties. This should be considered when budgeting for the property
2. No GST on Ready-to-Move-In Flats
Ready-to-move-in flats with an occupancy certificate are exempt from GST, making them more cost-effective compared to under-construction properties
3. GST Exemption on Land Purchases
GST does not apply when buying land for construction, making it an attractive option for those looking to build a home
4. Input Tax Credit (ITC)
Developers may pass on ITC benefits to buyers, reducing the overall GST cost. However, this is optional, so it’s important to check with the developer
Note: Check for GST Updates. GST rates can change, so it’s essential to stay updated and consult a professional before purchasing property.
Benefits of GST for Residential Real Estate
1. Lower Construction Costs
GST has streamlined the tax on materials like steel, cement, and other essential building supplies, effectively reducing construction expenses. Lower construction costs help reduce overall property prices, making housing more affordable for middle-class buyers.
2. Streamlined Tax System with ITC
GST integrates various indirect taxes into a single system, simplifying tax calculations for developers. Previously, taxes were applied to raw materials separately, adding complexity. The unified GST structure, along with the option of an Input Tax Credit (ITC) for developers, helps reduce overall costs and offers clarity on tax expenses.
3. Standardized Neutral Rate
By standardizing the tax rate on services and materials through central (CGST) and state goods and services taxes (SGST), GST reduces discrepancies across regions. This neutral rate ensures a more predictable and stable tax structure for real estate transactions, promoting consistency in pricing and making financial planning easier for buyers and developers alike.
GST on Developable Land
1. No GST on Developable Land
According to a CBIC circular dated August 3, 2022, GST is not applicable on the sale of developable plots, even if basic infrastructure is in place. This exemption has also been upheld in Karnataka through a recent Authority of Advance Ruling (AAR) decision.
2. Differing Interpretations in Past Rulings
Some states previously took a different stance on GST for developed plots. For instance, the Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) ruled in July 2022 that an 18% GST would apply to land sales with infrastructure developments. Similar interpretations were seen in a 2021 ruling by the Gujarat Authority of Advance Ruling.
3. Comparison with Stamp Duty and Registration Fees
Before GST, sales of immovable properties were exempt from VAT, with only stamp duty and registration fees imposed by state governments. These fees still apply in addition to GST on under-construction properties, and they vary between and within states.
Pre-GST Vs. Post GST – What Has Changed?
Before GST was introduced on July 1, 2017, the Indian real estate sector faced a heavy tax load because of various levies like VAT, service tax, and stamp duty. These multiple taxes resulted in a cascading effect, raising the overall property cost. Buyers were required to pay these taxes individually, complicating the process and driving up costs.
With the implementation of GST, the tax system became more streamlined, offering a unified tax rate and simplifying the entire process.
Frequently Asked Questions
1. Is there a concessional GST rate for affordable housing projects?
Yes, affordable housing projects under schemes like Pradhan Mantri Awas Yojana are eligible for a concessional GST rate of 1% without input tax credit, effective April 1, 2019.
2. How does GST impact home loan EMIs for flat purchases?
While GST doesn’t directly impact home loan EMIs, it does affect costs such as processing fees and legal charges, which could marginally increase the EMI.
3. What is the GST rate on luxury housing projects?
Luxury housing projects are subject to a 5% GST rate without ITC, increasing the overall cost for buyers.
4. Are there any government incentives related to GST for first-time home buyers?
First-time home buyers can benefit from the Pradhan Mantri Awas Yojana (PMAY), which offers subsidies on both home loans and interest rates, reducing the cost of homeownership.
