Is GST applicable on under-construction flats?

In India, purchasers of under-construction properties, such as flats, apartments, and bungalows, must pay a GST on flat purchase.The rate of GST varies based on the affordability of the property, with 1% being charged for affordable housing and 5% for non-affordable accommodation.

How to calculate gst on under construction property?

When purchasing an under-construction property in India, a GST on construction of residential house of 18% is levied on the construction value but only on the remaining amount after deducting the assumed land value of 33%.This effectively results in a tax rate of 12% for the buyer. However, after the 33rd Amendment by the GST Council, the tax rate has been reduced to 5% but is only applicable for properties without Input Tax Credit.

What is the current GST rate on flat purchases?

Flat owners and residents of housing societies in India are subject to Goods and Services Tax (GST) on their residential property maintenance charges.The GST rate on under construction property rate is 18% if the monthly maintenance charge the flat owner pays is Rs 7,500 or more.

Is GST applicable on resale flats?

If you buy a flat ready to move in, you do not need to pay GST.Additionally, landlords do not have to pay the GST rate on flat purchase unless the tenant is a business company. It is important to note that GST on under construction flats does not include stamp duty or registration charges, and buyers still need to pay these duties while purchasing a property.

Can I negotiate the GST rate with the developer?

No, but to avoid the dampening effect of GST on under-construction flats, some builders consider booking amounts as 'loans' from the buyer's subsidiary company.This is effective as completed projects with an OC are not subject to GST, while under-construction projects incur a 12% GST rate.

Calculate GST on Flat Purchase | GST On Under Construction Property

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30 JUNE, 2021

GST, also known as the Goods and Services Tax, is a comprehensive taxation system that has replaced many indirect taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service Tax Act that was launched on 1st July 2017 has brought transparency to the taxation process. However, numerous homebuyers often have queries about the impact of GST on real estate and how to compute GST on under construction properties.

GST on Under-Construction Properties

Government has recently offered relief for under construction property buyers. A tax of 18% is levied on under-construction flats, out of which homebuyers are required to pay only two-thirds, i.e., only 12% tax. A deduction of 6% is made because it is assumed that this is the value of the land being transferred.
Moreover, after the 33rd Amendment made by the GST Council, the tax rate for under-construction properties slashed from 12% to 5%. For affordable homes (under-construction properties priced up to Rs 45 lakhs), the tax rate would be 1%. However, this is only applicable for a property without Input Tax Credit (ITC).
Although the cap on affordable housing price is Rs 45 lakhs for metro as well as non-metro projects, the carpet area requirements may vary. Only those affordable under-construction flats that have a carpet area of 60 square metre in metros (Delhi-NCR, Mumbai-MMR, Bengaluru, Chennai, Hyderabad, and Kolkata), and 90 square metre in non-metros will qualify for 1% GST rate.

With the help of the above information, you can quickly get acquainted with the process of GST calculation. You can use an online GST calculator to check the GST you would have to pay on the purchase of under-construction flats.

Impact of GST on Real Estate

Analysis of the impact of GST on property prices

The impact of GST on India's real estate sector is multi-dimensional, affecting affordable housing, luxury properties, under-construction properties, registration charges, and stamp duty charges. Affordable housing is now taxed at a low rate of 1%, which benefits buyers.

Luxury properties are subject to a revised tax rate of 5%, resulting in increased savings for property owners.

Under construction property downturn in demand, prompting the Indian government to reduce GST rates and offer tax benefits for buyer interest payments. Registration and stamp duty charges are not impacted by the revised GST rates, which usually amount to 1% and 5-10%, respectively.

Discussion on the impact of GST on developers

Before GST, developers were subject to various taxes like Excise duty, VAT, Customs duty, Entry taxes, and Service tax on inputs like professional architect fees and legal charges. Still, ITC was not available for some of these duties. As a result, the burden of increased pricing was shifted to buyers. However, GST applicable under construction flats has reduced construction costs by subsuming multiple taxes and providing an input tax credit. Nevertheless, the need for developers to calculate ITC for buyers has resulted in transparency issues, leading to buyers delaying their purchasing decisions. GST has ensured that input credit is recorded, eliminating unrecorded expenditures in the books.

Impact of GST on home buyers

Earlier, buyers had to pay various taxes on properties under construction like VAT, Service tax, Registration charges, and Stamp duty. Developers had to pay different state levies, which varied from state to state. Additionally, buyers had to bear the burden of these levies since credit for duties like CST and OCTROI was unavailable.

Under GST, a 12% GST for under construction flats is applicable, while completed properties are exempt. This will result in reduced prices for buyers. However, in the short term, buyers may adopt a "wait and watch" approach to understand the impact of GST on property prices. In the long term, if developers pass on the benefit of input tax credit to buyers, GST will positively impact them.

The impact of GST on real estate sector is that the real estate developers can now claim the Input Tax Credit (ITC) on construction inputs such as labour, cement, bricks, etc. under the GST regime. Under ITC, the tax charged on GST will be credited back to the developers. This, in turn, will motivate developers to pass on the credit benefits to new homebuyers by ensuring fair property prices.

Furthermore, these changes also protect the interests of homebuyers by removing the stamp duty, which burdened buyers under the former tax regime. As a result, affordable housing has gained popularity in recent years.

How to Finance Under-Construction Property Purchase?

To purchase an under construction property, you can apply for a home loan with us at Kotak Mahindra Bank. If you have a good credit score, you can avail a higher loan amount at a reasonable home loan interest rate.

With us, you can avail a home loan for a long repayment tenure of up to 20 years. However, if you have a good repayment capacity, you should consider closing your loan sooner by opting for a shorter tenure. This will bring down the overall cost of borrowing by reducing the interest outgo. To close your loan sooner you can consider prepaying your loan. Make sure to read and understand the home loan prepayment clauses to avoid any inconvenience later. Also, do not forget to get an estimate of your home loan EMIs by making use of our online home loan EMI calculator. This will help you settle for an affordable EMI and reduce the chances of default. So, why wait? Opt for a home loan with us, now!

GST Rate on Construction and Building Materials

The standard GST on under construction property is 18%, but it varies for different segments. Affordable housing has a 1% GST rate, while other parts have a 5%. The rate of GST reduced for under construction property on construction materials is also different.

Cement has a GST rate of 12%, while sand used for construction has a 5% rate. Pebbles, crushed stones, and gravel are taxed at 5% while building bricks have a 5% rate. Tiles and ceramic goods have an 18% rate, while marble and granite have a rate of 12% and 28%, respectively. Interiors such as wallpapers and electrical appliances are taxed at 28%, and pipe and tube fittings have an 18% rate.

Is Maintenance fees for housing societies subject to GST?

Buyers often overlook the GST for under construction property. To avoid surprises, it is essential to understand the components for which GST charges are applicable, along with the minimum maintenance costs subject to GST. According to a circular issued by the Finance Ministry on July 22nd, 2019, housing societies must meet specific criteria to impose GST on maintenance charges.

If the total annual maintenance turnover exceeds Rs. 20 Lacs, GST is applicable. Additionally, a housing society must pay 18% GST if their per-month contribution to the Resident Welfare Association (RWA) exceeds Rs. 7500 per member.