Since the introduction of the Goods and Services Tax (GST) in India, the real estate industry has undergone significant changes aimed at simplifying the tax structure, improving transparency, and reducing the tax burden.
This transformation has made property transactions more straightforward for buyers and sellers alike.
In this blog, we will explore the GST rules, rates, and their implications on flat purchases in 2024. We will cover key aspects such as GST on under-construction flats, ready properties, affordable housing rates, and the registration process.
What is the GST on Property in India?
GST on property primarily applies to under-construction properties and varies based on the property type. The standard GST rates for residential properties are:
- 5% GST for non-affordable or luxury housing.
- 1% GST for affordable housing, without the benefit of Input Tax Credit (ITC).
Data Source: check the latest updated details on the official website for GST
GST is not levied on ready-to-move-in or completed properties since people consider them goods, not services. Commercial properties, however, are subject to a 12% GST with ITC benefits.
In 2017, the government introduced GST, replacing multiple indirect taxes like VAT, service tax, and excise duty. The government intended this streamlining of taxes to reduce complexity, increase transparency, and lower the overall tax burden for both developers and buyers.
GST on Flat Purchase in 2024
GST on Under-Construction Flats
Under the GST regime, the government taxes under construction flats at 5% for non-affordable housing and 1% for affordable housing. This rule applies to residential properties still under construction without an issued possession or completion certificate.
Developers can claim an Input Tax Credit (ITC) on materials and services used during construction. However, passing on these ITC benefits to the buyers is not mandatory, and it varies by developer. It’s essential for buyers to confirm with the developer whether they will receive any ITC benefit, as it impacts the final price.
GST on Ready-to-Move Flats
No GST is applicable to ready-to-move-in flats with a valid Occupancy Certificate (OC). These properties are considered completed goods and are exempt from GST.
However, if the property lacks an occupancy certificate or is still undergoing interior work, it might still be classified as under construction and subject to GST. Buyers should ensure that the property has the OC before finalizing a transaction to avoid any confusion.
GST on Registration of Flats
GST is not levied on the registration process of completed flats. Once a flat has a valid completion certificate, it is exempt from GST. The registration fee, stamp duty, and other charges, however, may still apply.
GST on New Flats
The GST rate on new flats under construction is 5% for non-affordable housing and 1% for affordable housing, without the benefit of ITC. The final cost of the property may vary depending on whether the developer passes on the ITC benefit.
GST Rates for Flats Below ₹45 Lakhs
For affordable housing projects, flats priced below ₹45 lakhs attract a reduced GST rate of 1%. This reduced rate applies to under-construction flats meeting specific criteria. These criteria are intended to support the government’s “Housing for All” initiative.
- In Metro Cities: The flat should have a carpet area of up to 60 sq. m. and a maximum price of ₹45 lakhs.
- In Non-Metro Cities: The flat should have a carpet area of up to 90 sq. m. and a maximum price of ₹45 lakhs.
This concessional rate encourages the development of affordable housing and makes it more accessible to a larger population.
GST on Flats Above ₹50 Lakhs
For flats priced above ₹50 lakhs, GST is applicable at 5% for under-construction properties. However, no ITC is available for these transactions. The same rate applies to all properties priced above ₹45 lakhs.
Key Points to Note:
- The 5% GST rate applies uniformly to under-construction properties priced above ₹45 lakhs, including those above ₹50 lakhs.
- Buyers cannot claim ITC on these properties as the developer is not obligated to pass on the ITC benefits to them.
GST on Maintenance Fees for Housing Societies
Housing societies with an annual turnover of more than ₹20 lakh are subject to GST on maintenance fees. If the monthly maintenance fee exceeds ₹7,500 per unit, an 18% GST applies to the total amount.
- For instance, on a monthly fee of ₹9,000 per unit, GST would be charged on the entire ₹9,000.
However, if the turnover is below ₹20 lakh, the society is not required to pay GST. Charges like water bills and property taxes are also exempt from GST.
Affordable Housing GST Rate in 2024
The GST rate for affordable housing in 2024 remains at 1% without the option to claim Input Tax Credit (ITC). Affordable housing is defined as properties priced under ₹45 lakhs with a maximum carpet area of 60 sq. m. in metro cities or 90 sq. m. in non-metro cities.
This reduced GST rate is part of the government’s initiative to promote affordable housing for all and make housing more accessible.
Example Calculation of GST on Flat Purchase in India
To calculate the GST on a property purchase, follow these steps:
- Identify the Base Price: This is the cost of the flat before taxes and other charges.
- Check the Applicable GST Rate:
- 5% for non-affordable housing.
- 1% for affordable housing.
- Calculate the GST Amount: Multiply the base price by the applicable GST rate.
- Add the GST to the Base Price: This gives you the total purchase cost.
Example: If the base price of an affordable housing flat is ₹40,00,000, the GST would be:
GST = ₹40,00,000 * 1% = ₹40,000
Thus, the total cost of the flat would be:
₹40,00,000 + ₹40,000 = ₹40,40,000
Input Tax Credit (ITC) on Property Purchase in India
Input Tax Credit (ITC) allows businesses to offset the taxes paid on their inputs by deducting the GST already paid on goods and services. However, ITC is not available for residential property purchases for personal use. ITC benefits are generally applicable to commercial properties and rental properties.
For example, if a developer spends ₹15,00,000 on construction materials and pays ₹2,70,000 in GST, they can claim an ITC of ₹2,70,000, reducing their overall GST liability when selling the property.
Impact of GST Rates on Flat Buyers
- Under-Construction Flats: Buyers of under-construction flats should consider the GST rates (1% for affordable housing, 5% for non-affordable housing) when budgeting for their property purchase.
- Ready-to-Move-In Flats: These are exempt from GST, making them more attractive cost-wise compared to under-construction properties.
- GST on Land: Land purchases are exempt from GST, making it an attractive option for individuals looking to build their own homes.
- Input Tax Credit (ITC): Developers may pass on ITC benefits, which can reduce the overall GST cost for buyers.
Benefits of GST for Residential Real Estate
The introduction of GST has simplified property taxation by consolidating various taxes like VAT and service tax. Key benefits include:
- Transparency: GST helps ensure transparency in transactions, reducing tax evasion and corruption.
- Cost Reduction: The removal of multiple indirect taxes lowers the overall tax burden on developers and buyers.
- Affordable Housing Promotion: The reduced GST rates on affordable housing encourage the construction of more homes for low-income buyers.
GST on Developable Land
GST is not applicable to the purchase of land for construction. This makes land an attractive investment, as no additional taxes are levied upon the purchase of land plots.
Pre-GST vs. Post-GST – What Has Changed?
Before GST, the real estate industry was subject to multiple taxes, including VAT, service tax, and excise duty. GST simplified this by consolidating these taxes into a single rate, making property transactions more transparent and predictable. The introduction of reduced GST rates for affordable housing has also made homeownership more accessible.
Also Read: How Does a Conveyance Deed Protect Your Rights in Property Transactions?
Frequently Asked Questions [FAQs]
For under-construction flats, GST is 5% for standard residential properties and 1% for affordable housing, both without Input Tax Credit (ITC). Completed flats with a Completion Certificate are exempt from GST.
Yes, under-construction flats priced below ₹45 lakhs qualify as affordable housing and attract 1% GST without ITC. Completed flats with a Completion Certificate are exempt from GST.
Affordable housing refers to residential units with a carpet area up to 60 square meters in metropolitan cities and 90 square meters in non-metropolitan cities, with a value up to ₹45 lakhs.
No, GST is not applicable on the resale of flats, as they are considered completed properties.
Under the new GST rates effective from April 1, 2019, builders are not allowed to claim ITC for residential projects.
GST increases the cost of purchasing an under-construction flat by 5% or 1%, depending on the property’s classification. However, for completed properties with a CC, there is no GST, potentially reducing the overall cost.
No, GST is not applicable on stamp duty and registration charges. These are state levies and are paid separately by the buyer.
Currently, there are no specific GST exemptions for first-time homebuyers. However, purchasing a completed property with a CC exempts the buyer from GST.
GST is calculated on the transaction value of the property. For under-construction flats, it’s 5% (or 1% for affordable housing) of the property’s value, excluding stamp duty and registration charges.
The GST rates were revised on April 1, 2019. Since then, there have been no further changes to the GST rates on residential properties.
HDFC Home Loan
SBI Home Loan
