While buying a house is symbolic of being independent, stable, and successful. For many, it is a milestone and a major financial commitment. Buying a home is one of the most expensive investments for most people, and the financial implications can be significant and long-term. One must consider several expenses such as loan EMIs if they are seeking financial aid, insurance, maintenance, and lastly, taxes. Talking about taxes, there are several different types of taxes one is liable to pay when purchasing a home, such as property tax, mortgage tax, transfer tax, GST, etc.
Let’s understand what GST is and what GST on a residential property purchase entails.
GST on residential property purchase
So, what is GST in real estate? Or what does GST on house purchases mean? For this, we must understand what GST is. The Goods and Services Tax, commonly known as GST, is a value-added tax levied on the supply of goods and services in India. In the case of property purchase, GST is applicable to the purchase of under-construction or new homes.
The GST on a house purchase is calculated based on the market value of the property. However, there are several factors and exemptions that can impact the GST on a property, such as property type, location, construction status, ITC, etc. It’s important to note that the GST on a home purchase may fluctuate based on government policies and regulations. Therefore, it is advisable to consult with a professional such as a tax consultant or a real estate agent to understand the GST registration charges, GST cancellation charges, and other GST charges in real estate specific to your property purchase.
GST is only applicable on the purchase of an under-construction property in India. A home buyer may have to pay GST on certain aspects of the transaction, such as construction services, goods used in construction, and other related services.
However, it is essential to understand the calculation of GST in the real estate sector as how GST on flat purchases is calculated is different from GST on under-construction property purchases. And for that, you need to understand Input Tax Credit (ITC), an essential aspect of the GST system. Under the GST regime, ITC can be claimed with proper documentation, such as a tax invoice.
Based on the type of property, the GST calculation may vary. The GST rate on an apartment which is under construction (affordable housing) is 1% without ITC. GST on luxury flats (under non-affordable housing) is 5% without an ITC, and if you are considering buying a ready-to-move new flat, GST is not applicable. Similarly, there is no GST on land purchases.
GST rates are subject to change as per rules and declarations. So, it is advised to seek professional assistance when purchasing a property in India to be able to understand GST implications.
Impact of GST on residential property purchase
GST implementation has impacted different types of property purchases, such as affordable, luxury housing and under construction. WithGST, the registration feesand stamp duty rates are also impacted.
With a revised rate of 1% on affordable housing and 5% on luxury housing, homebuyers are at an advantage.
Reduction in GST rates have enhanced the demand for under-construction properties. However, stamp duties and registration feesremain unaffected by the new GSTrates.
Common misconceptions about GST on residential property purchase
Although the concept of GST is not new but can be fairly complicated for first-time home buyers due to a lack of understanding. And thus, there are a lot of misconceptions about GST on residential property purchases. Here are some of them listed:
- GST on property purchases is calculated similarly to any other GST implementation: The GST on property purchases may vary based on multiple factors, such as affordable and luxury housing schemes, construction phase, and property type.
- GST is applicable on land purchases: No, buying land levies no GST.
- Affordable housing projects offer better GST rates: The GST rates on affordable housing projects may depend on the size and value of the property and, thus, may not always be affordable with GST applicability.
GST in real estate can be complex to understand for a layman home buyer. Therefore, seeking professional help while going for a house purchase is always advised as it often involves multiple steps and processes, including the computation of GST and several other taxes.
1. Is real estate subject to GST?
Answer: Yes, real estate is subject to GST (Goods and Services Tax) in India, depending on the type of property.
2. How to avoid GST on flat purchases?
Answer: GST is a mandatory tax levied by the government and cannot be avoided. However, a homebuyer can avoid GST by purchasing a completed flat or ready-to-move-in property, as such type of properties are not subject to GST.
3. What is the GST on commercial property?
Answer: The GST rate is 12% on commercial property.
4. How to calculate GST on a flat in 2023?
Answer: The GST on an under-construction flat (Affordable housing) was 8% with ITC till March 2019 but was revised to 1% without ITC from April 2019, GST on luxury flats was 12% with ITC and was changed to 5% without ITC from April 2019 onwards.
5. How to avoid GST on an under-construction property?
Answer: GST cannot be avoided on under-construction property purchases.
6. What is the new GST rule on property purchases?
Answer: There are no recent developments in GST norms on home purchases.
7. Who pays GST, the builder or the buyer?
Answer: The GST (Goods and Services Tax) is paid by the home buyer, and it is the responsibility of the builder to remit the GST to the government of India.
8. How do I claim a GST refund on a flat?
Answer: GST can be claimed only on under-construction flats by submitting a refund application to the GST authorities with details such as the GSTIN of the property builder and the amount of GST paid.
9. What is 12% GST on property purchases?
Answer: The 12% GST (Goods and Services Tax) applies to commercial property purchases.