GST Rate on Flat Purchase 2023
The GST rate on flat construction (affordable housing) is 1% excluding ITC. GST on luxury apartments (non-affordable houses) is 5% without ITC, GST does not apply if you are looking to buy a new ready-made apartment. Similarly, there is no GST on the purchase of land.|
Property Type
|
GST Rate till March 2019
|
GST Rate from April 2019
|
|---|---|---|
|
Affordable housing*
|
8% with ITC
|
|
Taxes on House Purchases Before GST
Before the introduction of a single tax in the form of GST in 2017, various state and central taxes were levied on buildings through different stages of the construction cycle of a housing project. While this tax increased project development costs for the developer, the builder does not have this tax credit against production liability. Some of the taxes that real estate developers will have to pay before GST comes into force are:
- Value Added Tax (VAT)
- Tax-free center
- Access code
- LBT
- Octroi
- Service Tax etc.
After GST Implementation
GST, which was launched in India on July 1, 2017, has been hailed as India’s biggest tax reform since independence. GST introduces several indirect taxes to offer a uniform regime to taxpayers. Since its inception, various changes have been made to the real estate tax bracket under the GST regime.
Types of Central and State Taxes that GST subsumed
Central taxes
- Excise Duty
- Customs Duty
- Special Additional Duty of Customs
- Service Tax
- Central Sales Tax
- Central surcharge and cess on supply of goods and services
State taxes
- State Value Added Tax
- Entertainment Tax
- Luxury Tax
- State Excise Duty
- State surcharge and cess on supply of goods and services
- Taxes on advertisement
- Purchase tax
- Taxes on lotteries, gambling, and betting
What is Affordable Housing under GST?
According to the definition set by the government, a house worth up to $45 million qualifies as affordable housing. However, in order to be a comfortable living space, the device must meet certain dimensional limits. Residential properties in metropolitan cities are eligible for affordable housing of around $45 million and up to 60 square meters (carpet area). Delhi-National Capital Region, Bengaluru, Chennai, Hyderabad, Mumbai-Mumbai Metropolitan Region and Kolkata are categorized as cities. Residences in other cities in India, which prohibit the above, can be afforded if the price is up to $ 45 million and has a carpet of up to 90 square kilometres.
What is input tax credit (ITC) under GST?
A unique feature of the GST Act is the ITC system, which differentiates it from the previous taxation system in India. From the beginning to the completion of a housing project, real estate developers in Jaipur pay several taxes on the purchase of goods and services. Under the GST regime, the builder will get an input tax credit when he pays the output tax.
GST calculation on affordable property
|
Affordable housing
|
GST on affordable housing before April 1, 2019
|
GST on affordable housing after April 1, 2019
|
|---|---|---|
|
Property cost per sq ft
|
Rs 3,500
|
Rs 3,500
|
|
8%
|
1%
|
|
|
Rs 35
|
||
|
ITC benefit for the material cost of Rs 1,500 at 18%
|
Rs 270
|
Not applicable
|
|
Total
|
Rs 3,510
|
Rs 3,553
|
GST calculation on affordable property
Impact of GST on luxury property
|
Luxury housing
|
Before April 1, 2019
|
After April 1, 2019
|
|---|---|---|
|
Property cost per sq ft
|
Rs 7,000
|
Rs 7,000
|
|
12%
|
5%
|
|
|
Rs 840
|
Rs 350
|
|
|
ITC benefit for the material cost of Rs 1,500 at 18%
|
Rs 126
|
Not applicable
|
|
Total
|
Rs 7,714
|
Rs 7,350
|
GST on Government housing schemes
The government has clarified that mega housing projects for common people will attract only 1% GST under the new regime. These housing schemes include Jawaharlal Nehru National Urban Renewal Mission, Rajiv Awas Ojok,jana, Pradhan Mantri Awas Ojojana, and state government housing schemes.
GST on construction services
Under the GST regime in India, the taxable rates for related activities in the construction sector are as follows:
–> Building purchased with PMAY Credit Linked Subsidy Scheme (CLSS) – 8%
–> Real estate purchased without subsidy – 12%
–> Contracts for affordable housing – 12%
GST rate on construction and building materials
Goods and Services Tax (GST) covers real estate in India through business contracts and construction and constitutional works as all components used in construction attract GST on flat purchase. Simply put, it is the Indian construction industry that continues to attract high taxes through a mixture of levies on the purchase of various construction materials during the new construction phase.
GST on maintenance charges for housing societies
Apartment owners pay 18% GST on residential property if they pay at least $7,500 in maintenance to the housing association. Housing societies or residents’ welfare associations (RWAs) that collect $7,500 per month per apartment must also pay a tax of 18% of the total amount. Housing associations with an annual turnover of less than $20 million, however, are exempt from paying GST.
GST on rent
When is the tenant liable to pay GST?
A GST-registered tenant who rents a residential house has to pay tax at 18% of the rental amount. The amendment in this case was announced by the GST Council on July 13, 2022. The new rules apply to individual service providers with an annual turnover of more than $20 million and businesses with an annual turnover of more than $40 million.
When the landlord is liable to pay GST
The GST regime treats residential properties as rental services. GST of 18% on residential rent is charged to landlords on rental income under this regime if the rent exceeds $20 million per annum. In this case, the tenant must pay GST on the rental income. GST is charged at the rate of 18% on withdrawals from commercial properties.
GST on home loan
About Borrowers Although GST has no application in disbursement of home loans, financial institutions offer several ‘services’ as part of home loans. Based on the fact that this is a service, the levy of GST arises. Finally, if you take a home loan, the bank will charge GST for processing, technical assessment, and legal fees.
GST fact check: Did you know?
- Residential projects with up to 15% commercial area are treated as residential under GST.
- The effective GST on commercial properties is 12%.
- You don’t have to pay GST to buy tickets.
- You don’t have to pay GST to buy a ready-to-move-in apartment.
- The landlord does not have to pay GST unless the tenant is a business enterprise.
GST is not applicable on ready-to-move-in flats; it is relevant on under-construction flats only
It is important to note that GST on flat purchase does not cover the real estate sector itself. The applicable tax rate for real estate development is charged in the “employment contract”. That is the very reason why builders cannot charge GST for the sale of ready-made houses. After the completion of the work and receipt of the certificate of occupancy, the property is classified as ready to move in and out of the scope of the work contract.
GST on a one-time maintenance deposit collected by builders
GST applies to one-time maintenance deposits collected by builders from home buyers, said a bench of the Gujarat Authority for Advance Adjudication (AAR). According to the authorities, this fee is classified in the category of service provision and is non-refundable in nature. However, AAR said that when the money is spent on future maintenance, GST will be deducted from the amount of maintenance.
GST is not applicable to land transactions
The sale of land is exempt from GST for construction services as the sale does not involve the transfer of goods or services. Since land value is an important factor in determining property prices, GST provides for a standard deduction of 33% of the total contract value on land value for taxable real estate transactions.
Rate of GST on developable land
No GST applies if you invest in growth potential. This is based on a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) dated August 3, 2022, which states that even if some basic infrastructure is developed, the sale of land will not attract GST. Karnataka AAR also recently passed an order in the same area.
What is developable land?
Only the owner of the area has received all the necessary permits from the local government and municipality for future development on the parcel that qualifies as a developed area. Owners need to develop basic infrastructure to facilitate future growth. If any or all of these activities are performed on a piece of land, it will be selected as a development site:
- Plan division
- flatten
- Construction of the border wall
- Road construction
- Construction of overhead tanks
GST on plot
Although retail sales are outside the scope of the GST regime, any minor construction on land will attract GST. In case of the sale of such land, one-third of the cost of the land is deducted and GST is levied on the remaining two-thirds of the land.
GST on the sale of developable plots
Before the Gujarat Advance Ruling Authority (AAR) ruled that the sale of advanced land is a ‘service’ and taxable under the current regime, there was a general understanding that the sale of developable land was unplanned. GST. This is because the list in Schedule III of the CGST Act stipulates that the sale of land and the sale of buildings will be treated as not goods or services.
GST applicable on compensation paid to farmers: Karnataka AAR
According to the Karnataka Development Authority (AAR), the compensation paid to farmers for providing land while work is being done is subject to goods and services tax.
“Reimbursement of land compensation paid to farmers and landowners at the time of implementation of work is deductible from GST as the applicant is not entitled to become a net agency,” said AAR in the latest decision.
GST impact on stamp duty and registration charges
Despite continuous demands since the GST regime came into force, the government has not taken any steps to abolish stamp duty and property registration fees. Therefore, property transactions in India continue to attract stamp duty and registration fees. When declaring stamp duty between 5%-10%, the registration fee is 1% of the property value or the standard fee.
GST on flat registration
In India, most of the state’s revenue comes from stamp duty on property deals. If the state has to spend this revenue, the loss will be more than before. This fact makes us believe that the possibility of GST covering both costs is impossible, at least in the future will come,” says Lucknow-based lawyer Prabhansu Mishra.
GST refund on flat purchase cancellation
Changes in the GST Act will likely require home buyers to claim a GST refund if they cancel a home purchase on which they have already paid tax. So far, the new tax rules have no procedure to allow unregistered entities, including home buyers, to claim GST refunds.
GST real estate timeline
2000
The then Prime Minister Atal Behari Vajpayee set up a panel to formulate a GST on flat purchase model.
2004
Vijay Kelkar, who was then an advisor to the finance ministry, suggested GST to replace the existing tax system.
2006
Former finance minister P Chidambaram had set April 2010 as the deadline for implementation of GST in his budget speech.
2011
March 22: The government introduced the 115th Constitutional Amendment Bill in the Lok Sabha to introduce GST.
2014
December 18: The Cabinet approved the 122nd Constitutional Amendment Bill on GST.
December 19: FM Arun Jaitley introduced the Constitution (122nd) Amendment Bill in the Lok Sabha.
2015
May 6: The People’s Assembly passed the GST Constitution Amendment Bill.
May 12: The Amendment Bill is introduced in the Rajya Sabha.
2016
September 2: 16 states approve the GST bill; The President gave his assent to the bill.
September 12: The Cabinet cleared the formation of the GST Council.
September 22-23: The GST Council met for the first time.
November 3: The council decided to impose a four-tier tax structure of 5%, 12%, 18% and 28%, as well as surcharges on luxury goods and sins.
2017
July 1: GST rolled out; an 8% rate is proposed in construction facilities.
2019
February 24: The government reduced the GST rate on construction properties from 12% to 5% and affordable housing from 8% to 1%.
2023
June 1: Realtors body Credai said the government should exempt GST on flats given free to residents in redevelopment projects.
