When buying a home, you must pay Goods and Service Tax, or GST. The GST affects real estate buyers and developers. The GST on Indian property depends on its kind, value, whether it’s under construction or ready to occupy, etc.
In India, buyers of under-construction flats, apartments, and bungalows pay 1% GST for affordable housing and 5% GST for non-affordable housing. The GST applies to real estate land purchases.
What is the GST on property in India?
The Indian government implemented the Goods and Services Tax in 2017 to harmonise international taxation systems.
Before GST, developers and property purchasers had to pay several taxes, such as value-added, service, and central excise, increasing the burden on property purchasers. The taxation of the properties was structurally complicated and less transparent.
Initially, the GST on property acquisition was 12% for non-affordable housing and 8% for affordable housing for premium residential buildings.
Property purchasers were eligible for the input tax credit or ITC on the previously applicable GST rates.
The GST rates were updated during the 33rd meeting of the GST council and are effective as of April 1, 2019.
The new GST rate for purchasing affordable housing units is 1%, whereas it is 5% for non-affordable or luxury housing units without ITC.
GST on the purchase of a flat
Those purchasing flats and apartments in under-construction developments in India’s megacities in 2024 would be required to pay GST. Note that the GST does not apply to buying apartments in completed developments. A finished project has received a certificate of completion from the appropriate authorities.
GST on the purchase of a flat in 2024
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Residential Property types
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GST rate till March 2019
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GST rate from April 2019
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|---|---|---|
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Affordable housing under-construction
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8% with ITC
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1% without ITC
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|
Non-affordable housing other than under-construction
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12% with ITC
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5% without ITC
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|
For ready-to-move-in properties
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No GST
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No GST
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Note that the new tax rate without input tax credit (ITC) will apply to all new projects. However, builders have until May 20, 2019, to choose between the old and new rates for current projects. This discount was applicable only for unfinished projects as of March 31, 2019.
Taxes before the introduction of the GST
Through the various stages of a housing project’s construction cycle, a number of state and central taxes were levied on buildings prior to the introduction of a single tax in the form of the GST in 2017. Although these taxes raised the cost of project development for developers, builders were not eligible for a credit against this tax against the output liability. Prior to the implementation of the GST, real estate developers were required to pay taxes such as:
- Value Added Tax (VAT)
- Central Excise
- Entry Tax
- LBT
- Octroi
- Service Tax, etc.
The property buyer then became responsible for paying the builders’ tax expenses.
Developers were also able to manipulate numbers to raise prices for customers due to the complexity of the rates for the various taxes. Finding out the rates of VAT, Central Excise, Entry Tax, LBT, Octroi, and Service Tax that apply to the construction of a property used to be a difficult task for the average buyer.
Types of state and central taxes that the GST absorbed
The central and state taxes that the GST replaced when it went into effect in July 2017 are listed below:
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 does GST’s input tax credit (ITC) entail?
The ITC system, which distinguishes the GST law from India’s prior tax system, is one of its distinctive features. A real estate developer incurs multiple tax payments on the acquisition of goods and services during the course of a housing project. The builder would receive an input tax credit under the GST system when he paid his output tax.
Example: A developer must pay tax on his finished product of Rs 30,000. When buying materials like steel, cement, paint, etc., the builder already paid Rs. 25,000 in input tax. After adjusting for the input tax credit, he would only be required to pay Rs 5,000 in output tax in this case.
Conditions governing GST on residential real estate
Prerequisites to qualify for the 1% GST exemption on residential property:
The site qualifies as a project of affordable housing:
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For Metro cities The Property Comes Under Affordable Housing If-
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Area of the Under construction House = 60 sq.m.The Price Upto 45 Lakh
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|---|---|
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For Non-Metro cities The Property Comes Under Affordable Housing If-
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Area of the Under construction House = 90 sq.m.The Price Upto 45 Lakh
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Additional conditions to receive 1% GST on flat purchases
To be eligible for the 1% GST Rate on Flats, at least 80% of the raw materials must be purchased from a registered dealer. If not, the developer must pay 18 percent GST under RCM.
The 1 percent GST payable to affordable dwellings under development does not include an ITC. Therefore, the GST one pays while acquiring the property cannot be deducted from your income. Consequently, you will not receive the advantage of decreased yearly income tax on your income.
Calculation of GST on the purchase of a flat in India
It is essential to understand the parameters for affordable and non-affordable real estate to compute the GST on real estate In India.
The GST for affordable housing is less than the GST for housing units that are not affordable.
Let’s examine some samples of the GST computation for Indian apartment purchases.
Calculating GST on affordable property
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The Cost of the Property Per Sq. ft
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Rs 6000
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|---|---|
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GST on the Affordable Housing Segment
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1%
|
|
GST Value Per Sq. Ft
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Rs 6
|
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Price Per Sq. Ft after the GST
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Rs. 6006
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Calculating GST on non-affordable property
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The Cost of the Property Per Sq. Ft
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Rs 10,000
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|---|---|
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GST on the Affordable Housing Segment
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5%
|
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GST Value Per Sq. Ft
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Rs 50
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Price Per Sq. Ft after the GST
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Rs. Rs. 10,050
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Calculation of GST on affordable housing
How to compute the Goods and Services Tax (GST) on the purchase of affordable housing flats before and after the April 1, 2019, rate change:
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Affordable housing
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GST on affordable housing before April 1, 2019
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GST on affordable housing after April 1, 2019
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|---|---|---|
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Property cost per Sq. Ft
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Rs 3,500
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Rs 3,500
|
|
GST rate on flat purchase
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8%
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1%
|
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GST
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Rs 280
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Rs 35
|
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ITC benefit for a material cost of Rs 1,500 at 18%
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Rs 270
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Not applicable
|
|
Total
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Rs 3,510
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Rs 3,553
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The effect of GST on the purchase of luxury homes
Under the new GST rates, purchasers of premium real estate will save more than they did previously. Here is how to compute the GST on the purchase of a luxury home:
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Luxury homes segment
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Before April 1, 2019
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After April 1, 2019
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|---|---|---|
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Property cost per Sq. Ft
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Rs 7,000
|
Rs 7,000
|
|
GST rate on flat purchase
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12%
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5%
|
|
GST
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Rs 840
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Rs 350
|
|
ITC benefit for a material cost of Rs 13,000 at an average of15%
|
Rs 126
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Not applicable
|
|
Total
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Rs 7,714
|
Rs 7,350
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Check Your GST knowledge
GST applies to residential buildings with up to 15% of commercial area.
Commercial property GST is 12%.
Plot purchases are exempt from GST.
Ready-to-move-in apartments are GST-free.
The GST is not payable by landlords unless the tenant is a business entity.
GST on property registration does not include stamp duty or registration fees; you must still pay these fees when purchasing a home.
GST applies to bank services related to housing loans, such as processing fees, legal fees, etc.
At least a dozen other taxes have been absorbed by GST.
Ready-to-move-in houses cost more due to GST.
Even though GST is applicable, under-construction homes are less expensive than ready residences.
GST on registration of a flat
No GST applies to property registration fees. But can GST replace stamp duty and registration fees?
Lucknow-based lawyer Prabhansu Mishra says that the stamp duty on property transactions contributes significantly to state revenue in India. If states gave up this revenue, the exchequer would suffer even more significant losses than it is now, and thus the chances of GST combining the two taxes are zero, at least for now.
GST on subsidised housing projects
The administration says that government-led major subsidised housing projects aimed at the common man, including Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana, the Jawaharlal Nehru National Urban Renewal Mission, and state government housing programs, will be subject to only 1% GST under the new regime.
GST for construction services
While real estate in India isn’t directly taxable under GST, numerous activities and services are. Following are the GST rates for construction-related activities in India:
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An under-construction home bought under the PMAY Credit-Linked Subsidy Scheme (CLSS)
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8%
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|---|---|
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An under-construction home bought without the subsidy
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12%
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|
Works contract for affordable housing
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12%
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GST on maintenance fees for housing societies
Flat owners must pay 18 percent GST if they pay at least Rs 7,500 in maintenance fees. Housing societies or RWAs that collect Rs 7,500 per month per unit must additionally pay 18% tax. Housing societies with revenue under Rs 20 lakhs are free from GST. For GST to apply, each member must pay more than Rs 7,500 monthly maintenance fees, and the RWA’s annual revenue must be more than Rs 20 lakhs.
The full amount is taxed if monthly fees surpass Rs 7,500 per member. If maintenance fees are Rs 9,000 per month per member, the 18% GST on apartments is levied on Rs 9,000. Multi-flat owners in the same housing society will be taxed individually.
GST rate on developable land
If you buy developable plots, there won’t be any GST to pay. The Central Board of Indirect Taxes and Customs (CBIC) circular from August 3, 2022, which stated that plot sales are exempt from GST even if some basic infrastructure has been developed, established this. Recently, a similar order was also passed by the Karnataka AAR.
Previously, some state authorities adopted a divergent viewpoint. For example, the Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) ruled in July 2022 that land sold after engaging in development activity will be subject to an 18% Goods and Services Tax (GST). The Gujarat Authority of Advance Ruling rendered a similar decision in 2021.
Prior to the implementation of the GST system, sales of immovable properties were not subject to the value-added tax, and as a result, only direct taxes, such as stamp duty and registration fees, were paid.
The impact of GST on the real estate market
The GST has been one of the most significant reforms in the real estate market. The developer already pays Customs Duty, VAT, Excise Duty, legal expenses, service taxes, permission fees, etc., hampering their tax processes and burdening homeowners.
Under GST, property tax was simplified. The new GST regime increased the real estate tax rate to 12% and lowered property buyers’ burden. Taxation impacts developers and property purchasers. The 34th council meeting held in 2019 announced new GST rates where they lowered the tax rates. For inexpensive housing developments, the new GST was 1%; for luxury residential buildings, it’s 5%.
