Buying a home is an emotionally satisfying decision, albeit one that requires major financial commitment on the part of the buyer. Apart from the asking price or the prevalent selling price of the property, many other finances come into picture, like stamp duty, registration charges, and Goods and Services Tax (GST), among others. The implementation of GST in India’s real estate sector has significantly altered its taxation landscape. Having clarity on implications of GST on residential property can help prospective homebuyers make informed decisions. This page is dedicated to clarifying the GST component on residential properties and common misconceptions surrounding the topic.
Rate of GST on Residential Property
When we talk about GST on house purchase, we need to understand that the rates applicable to residential property purchases vary based on the property’s completion status and its type. Housing properties are classified as affordable and non-affordable. Their completion status is categorised as under-construction and ready-to-move-in.
Under-Construction Properties: For under-construction residential projects, the current GST rate is 5% excluding Input Tax Credit (ITC). However, for affordable housing projects, the government has introduced a highly concessional GST rate of 1% without ITC.
Ready-to-Move-In Properties: Completed properties that have received an Occupancy Certificate (OC) are exempt from GST.
Now, to fully understand the applicable rate of GST on residential property, it is important to understand what defines an affordable house. In a metropolitan city, a residential unit not exceeding carpet area of 60 square meters and not costing more than Rs. 45 lakhs is considered an affordable house. In a non-metro city, the price capping remains the same but the carpet area for an affordable house has a capping of up to 90 square meters.
How does GST on house purchase impact a homebuyer?
Cost implications: Purchasing an under-construction property means the buyer has to shell out extra money to take care of the GST rate applicable on the type of the property. This increase in overall cost of the property sometimes dissuades the buyers.
Increased demand for ready-to-move-in properties: To escape the additional burden of tax, a lot of homebuyers look for ready-to-move-in properties. These properties are exempt from GST and hence the high demand.
Simplified taxation: While the introduction of GST on under-construction properties has led to second-thoughts in the minds of buyers, it has greatly helped the government streamline the real estate taxation process by replacing multiple indirect taxes with a single tax. It has also led to reduced complexity and increased transparency.
Considerations for Homebuyers
Prospective homebuyers are advised to thoroughly understand the GST on residential property to make a well-informed decision. The following points can help:
Determine whether the property is under-construction or not, as GST is applicable only on under-construction properties.
If the property you wish to buy qualifies as affordable property, you can benefit from the lower GST rate of 1% instead of the usual 5%.
As there is no GST on land purchase, you can buy a land parcel and build a home on it to save money on taxation. However, GST is applicable on the construction material needed to construct the home.
Keep in mind that GST does not include other charges such as stamp duty, registration charges, and maintenance charges.
