Buying a home involves taking care of many things and GST is one of them. As per the government mandate, Goods and Services Tax or GST on property purchase is now applicable since the enactment of the GST Act.
GST is also an integral part of managing finances since it helps reduce taxes on many items. This is due to the strict measures taken by the government for anti-profiteering and fear of tax raids and criminal prosecution in case of tax evasion to ensure benefits are passed on to the customers without fail, and the economic inflation is reduced. However, it does not discourage you from managing your finances to pay less tax.
Following the enactment of GST on 1st July 2017, the act has replaced all the involved indirect taxes and brought uniformity to the Indian tax regime. Before the enactment of the act, the real estate sector had no uniformity in calculating taxes associated with the sale or purchase of land since a combination of central and state taxes was imposed on construction projects. Hefty taxes increased the construction cost, and the customers suffered. The complexity of the applicable rates gave the developers enough leverage to manipulate the cost and charge a lot more to the unsuspecting buyers.
Therefore, the whole process became a herculean task for homebuyers to calculate every tax applicable to real estate construction. The implementation of GST on home purchase or GST on residential property has brought in a lot of transparency in the real estate sector. One recent change brought by the Central government in the GST norms effective from 1st January 2022 is the mandatory Aadhaar authentication for claiming GST refund. Moreover, the input tax credit can be availed by the recipient when the supplier of goods and services files their GSTR-1 with respect to which tax has been paid.
The year 2002 saw some reductions in GST for owning a home in India. The reduction of GST on home purchases to ease the real estate slowdown has relieved the sector. According to experts, this will lower the overall purchase costs by almost 4%-6%. This is certainly beneficial for people looking to buy their first homes this year.
GST on flat purchase for residential purposes entails 5% GST without an input tax credit on flat purchases, which are not a part of affordable housing. Moreover, affordable housing will be subject to a 1% GST without an ITC. The GST on under-construction properties is 12%. In case of resale of completed homes where the occupation certificate has been granted or resale of properties, the GST for flat purchase rate will not be applicable.
Residential units with prices ranging up to Rs 45 lakhs and qualifying certain measures are included under the affordable housing GST segment. In a metropolitan city, a housing unit that measures up to 60 sq meters carpet area and costs up to Rs 45 lakhs is categorised as affordable housing. Affordable housing outside metropolitan areas qualifies if it covers a carpet area of 90 sq meters and is priced under Rs 45 lakhs.
The ITC system is unique to the GST regime. It makes the taxation process in steps, with the builder paying GST for every service rendered or goods purchased for construction purposes. Moreover, when the builder pays out their output tax and declares it in their GSTR-1, they get an input tax credit.
After the changes in 2019 GST home rates, the cost has been reduced on luxury properties per square ft. With the 5% GST rate on flat purchase and non-applicability of ITC on material cost, the buyers get a lower price as compared to the earlier regime.
GST calculation on the affordable property after the alterations in rate effective 1st April 2019 is calculated with respect to GST rate on flat purchase rate, i.e., 1% (instead of the earlier 8%). So, considering GST on affordable housing with flat cost per sq ft. as 3,500 with applicable 1% GST rate and non-applicable ITC benefit for material cost would bring out the total cost to be Rs. 3,535 per sq ft.
There is an 18% GST applicable on maintenance charges if the charges payable by the flat buyer are Rs 7,500 or more. However, two conditions must be satisfied for the GST to be applicable, i.e., every member of the housing society is liable to pay the above amount along with the housing society furnishing its annual turnover over Rs 20 lakhs.
A great relief for landlords and landowners is the exemption of GST on rental properties. However, this exemption is only granted if the property is let out only for residential purposes.
There is no such applicability of GST on home loan repayment on the borrower’s end. However, since rendering a loan is considered a service, financial institutions are likely to charge GST as a processing fee for your loan amount.
GST has completely changed the tax norms in the real estate industry. It has brought in a lot of transparency and accountability in the real estate sector by subsuming the earlier stacks of taxes.
The above points provide a streamlined view of the various questions related to the applicability of GST in real estate. This guide will help you make informed decisions in understanding the nuances involved in the process as you move forward with your home purchases.
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