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GST on Real Estate

When it comes to meeting tax obligations, homebuyers along with property taxes, also have to pay the applicable GST on their property purchase. Over the last few years, several changes have been made to the GST regime directed towards the real estate sector. 

Potential investors and homebuyers must scrutinise the implications of GST on real estate to make an informed decision when it comes to investing in this sector. 

What is GST on Real Estate?

Fundamentally, GST is paid by investors and home buyers while investing in under-construction properties. Before the implementation of GST, several taxes including VAT, stamp duty, service tax, registration charges, etc. had to be paid by home buyers. 

With the introduction of GST on real estate, one has to pay taxes only on under-construction properties. Notably, one does not need to pay GST on ready for sale or completed properties that have a legitimate Completion Certificate.  

GST Taxation on Real Estate

Particulars GST Rate
Ready to Move Properties
Under construction properties (houses bought under credit linked subsidy scheme) 8%
Under construction properties (excluding the other) 12%
Resale properties
Land purchase and sale
Works contract 18%
Composite Supply of works 18%
Composite supply of works to Govt Authority 12%
Composite supply of use for the general public 12%
Composite supply of works contract for affordable housing 12%

Impact of GST on Real Estate Sector

The real estate sector in India contributes around 7.8% to the country’s GDP. This sector is also the second avenue of employment generation after the IT industry. The implementation of GST on property sector is aimed at bringing transparency in its functioning and solving this sector’s underlying challenges.

That being said, let’s take a quick look at the impact of GST on real estate sector and its major components.

Impact on affordable property

With GST homebuyers have gained clarity about their tax liability and this regime offers them more transparency. Even a minute reduction in GST rates enables homebuyers to save more on their purchase, making the property affordable. Notably, the GST for under-construction houses under Rs.45 lakh and government-backed housing schemes is 1%. 

This table helps to compare GST on affordable housing before and after 1st April 2019.

Affordable housing  GST on affordable housing (before 1st April 2019) GST on affordable housing 

(After 1st April 2019)

Property cost (per sq ft) Rs.3500 Rs.3500
GST rate on the purchase of residential flats 8% 1% 
GST amount (per sq ft) Rs.280  Rs.35
Input Tax Credit benefit for construction material of Rs.1500 @ 18% Rs.270 N/A
Total GST Amount Rs.3510 Rs.3553

Impact on luxury property 

The new GST rate on real estate enables property owners to save more on their property purchase than the previous tax regime. The new GST for a luxury property is 5%, but one cannot claim any input tax credit on it. 

Impact on under-construction property

In the past few years, the sale of under-construction property witnessed a slowdown. In an effort to revive the said sector, the government has reduced GST rates. The government has also increased the tax deduction limit on housing credit interest repayments. Such a move is not only beneficial for home loan borrowers but also proves useful for developers as they can now sell-off stock faster. In turn, it relieves them from paying taxes on piled-up inventory. 

Impact on registration charges and stamp duty 

The registration and stamp duty charges remain untouched under the GST on real estate regime. The registration charge is usually 1% of the property value; sometimes, the state may charge it as per the standard fee. On the other hand, the stamp duty is charged at the rate of 5% – 10%.

Nonetheless, individuals are not required to pay GST on their flat registration. Since both stamp duty and registration charge generates a large percentage of revenue, it is debatable whether the states will forego these charges or bring the same under the GST regime.  

GST Calculation on Real Estate 

By factoring in the cost of property and the applicable GST rate and other charges, one can easily estimate the GST on property. To break it down, GST liability is computed by adding the State GST and Central GST. 

For instance, 

Total GST = SGST +CGST  

Notably, this GST regime extends an abatement of 33% of the contract amount as land value.  

Example of GST Calculation

This simple example emphasises how GST is computed on under-construction property.

Suppose an under-construction property is worth Rs.1000 and is sold to a buyer. The GST on the property in question is computed after factoring in the standard abatement on under-construction property.

So, after deducting the 33%, Rs.330 will be considered as the land value. Subsequently, GST on the property will be computed on the remaining Rs.770 by implementing the applicable rates. 

GST Exemptions on Real Estate 

Under schedule III of GST Act, 2017, ready-to-move-in properties do not come under the category of goods or services. It is more like an activity of purchase or sale of a property. This is why GST is not applied to ready-to-move properties with a legitimate Completion Certificate. 

Similarly, individuals will not be required to pay GST on resale properties and purchase and sale of land. 

Other than the said exemption, real estate developers are entitled to claim the Input Tax Credit on construction material under the GST system. Notably, to claim such benefits, developers need to meet a few specific conditions. For example, to proceed with the claim developers need to –

  • Submit invoices/receipts of construction material
  • The developer must receive goods and services
  • Claims on personal use of goods and services will not be entertained
  • All pending dues must be cleared
  • GST must be filed accurately 

Things to Remember about GST on Real Estate 

  • Under GST residential property with a maximum of 15% commercial space will be treated as residential property.
  • The applicable GST on a commercial unit is 12%.
  • Landowners have to pay GST only if the tenant is a commercial firm.
  • GST is applicable on services like legal fees, processing fees, etc. on home loans. 
  • Even after applying GST, the cost of under-construction houses is cheaper than ready-to-move-in projects.

Prospective buyers are suggested to consider a few vital things before investing in this sector. For instance, individuals should weigh in their investment horizon as real estate is best as a long-term asset. Also, they should factor in their capability to meet the financial obligations, including GST on property that accompanies such purchases. 

GST on Real Estate - FAQs

Q1. What is the definition of a residential real estate project?

A Real Estate Project in which the carpet area of the commercial space does not exceed 15% of the total carpet area of the project’s apartments.

Q2. Is GST levied on residential property?

When you rent out a residential property for personal use, you are exempt from GST. Any other sort of leasing or renting out of the immovable property for commercial purposes would be subject to 18% GST because it would be considered a provision of service.

Q3. Who pays the GST, the builder or the buyer?

In India, buyers of under-construction properties such as flats, apartments, and bungalows must pay a Goods and Services Tax (GST) of 1% for affordable housing and 5% for the non-affordable property.

Q4. Is there a GST on the sale of real estate?

As land is an immobile item, there is no GST on its sale. Assume, however, that there is a combined supply of land as well as common utilities, as in the case of plotted developments. In that instance, GST is levied on the amount charged by the seller for such additional services and common utilities.

Q5. How can I avoid paying GST on a newly built property?

If the builder has received the completion certificate before you buy it, it is deemed ready-to-move-in property. As a result, there is no GST on such assets.

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