What Do You Need To Know About The GST On Residential Property?Arun Kumar 11 January 2023
To comply with the tax burden, Property buyers must pay gst on residential property in addition to property taxes. In the past few years, there have been some changes in the GST regime in the real estate sector. Potential investors and homebuyers must consider the impact of GST on real estate to make informed decisions about investing in this sector. GST was introduced and came into effect on 1st July 2017. This form of tax has a great influence on many Indian businesses, especially in the real estate business.
What is the GST rate for residential buildings?
Those who purchase properties in projects under construction in India will be required to pay GST on their purchases in 2022. GST on property purchases does not apply when purchasing properties in completed developments. Completed projects receive a certificate of completion from the competent authority.
GST on Residential Property in India: What is it?
Before the introduction of GST, real estate buyers were faced with the hassle and stress of multiple taxes, such as the central excise tax, VAT, etc. There is no doubt that property taxation in those days lacked transparency and complexity. Things are not the same with GST.
Initially, the GST for purchasing housing was 8% (affordable housing) and 12% (affordable housing). The taxation scheme allows property buyers to benefit from ITC (credit input tax) at the default GST rates applicable.
However, as of 1 April 2019, the new and revised gst on residential property is now in effect, which was decided at the 33rd GST Council meeting. The revised GST rate for flat purchases is now 1% if it is for affordable housing units and 5% without ITC.
What is the impact of GST on real estate buyers?
According to the old tax regime, Buyers need to pay service tax. VAT, stamp duty, and registration fees for real estate purchases under construction. Property prices also vary from state to state.
In addition, due to the introduction of VAT, Stamp duty and registration fees are state taxes. In addition, other duties such as CST (sales tax), customs and OCTROI will be payable by the buyer, which are not credited.
After the real estate GST tax rate has been introduced, all properties under construction have a single tax rate of 12%. On the other hand, as per previous law, there is no GST on all properties. Make it more beneficial for buyers by lowering costs under GST for real estate.
How will the GST affect builders/contractors/developers?
According to the previous tax regime, the contractor or developer is required to pay various fees, such as VAT, Excise duty, customs duty, and import duty on inputs/material. In addition, they are required to pay service tax on many input services such as professional architect fees, approval fees, wages, legal costs, etc. Since ITCs are not applicable to customs, CST, immigration taxes, etc., they tend to Burden buyers by affecting pricing. Many other services related to the real estate industry also depend on this reduction or increase in the Goods and Services Tax.
For example, cement previously had a tax rate of 27-31%, which became 18% after the new taxation system. An increase in cement prices will increase overall construction costs.
How will the residential property developer get benefit from GST?
The benefits of gst on residential property are given by,
- Buying Real Estate Gets Easier and Easier: One of the direct benefits of GST is that buying real estate will be simpler and easier than ever before. The complex paperwork that is often used to purchase real estate is reduced to a minimum and is relatively easy to understand.
- Property taxes will be greatly simplified and reduced: The highly complex and confusing taxation that surrounds property purchases has until now been a major hurdle for aspiring homeowners. Your home will become completely transparent and greatly simplified.
- Housing becomes more affordable: By combining taxes charged from the purchase of the real estate, Housing is expected to become more affordable with the implementation of GST.
- Land sales will become more reliable: A reduced and simplified taxation system requires more transparency for landlords and property developers. This means buying and selling land is more reliable and easy.
- Real estate projects are completed on time: Often, delays in completing real estate projects are not up to the builder. Reams of documents are often responsible for delays with a more rigorous and simplified process. This makes real estate projects more likely to be completed on time.
GST Rates for Residential Properties:
- If the homeowner is registered under GST, that's okay, and GST is not included.
- If the tenant is registered for GST, there is no GST when the property is leased to an individual or for personal use.
- If the residential unit is leased to a business entity, the GST rate is 18%.
How do you pay GST on your residential property?
Flat owners are required to pay 18% gst on residential property. Suppose they pay a minimum maintenance fee of 7,500 rupees to the housing society. In that case, The Residents Welfare Association (RWA) charges a monthly service fee of Rs 7,500 per apartment, a tax of 18% of the total amount.
Residential associations with an annual turnover of less than 20 lakh rupees will be exempt from GST. Both conditions are met for GST to apply i.e.
- Each member is required to pay a monthly maintenance fee of Rs. 7,500 and above and
- RWA's annual turnover must be at least INR 20 lakh.
The government also clarified that if the spending exceeds 7,500 rupees per member per month must pay the full amount of tax.
If the maintenance fee is INR 12,000 per member per month, 18% GST is payable on the unit for the total amount of INR 12,000, and INR 4,500 (Rs.12, 000 to INR 7,500) is non-payment. Owners of multiple flats in the same housing society are subject to a separate tax for each unit.
How can you avoid paying GST on residential property?
You can avoid paying gst on residential property if you:
- Buy a pre-built or pre-built flat (flat with a certificate of completion)
- Buy a flat with a certificate of occupancy.
- Buying second-hand flats
How do you calculate GST in 2023?
To calculate GST for residential property in India, You need to know the conditions for affordable or unaffordable real estate. The GST for affordable housing is lower than the GST for affordable housing.
You can look at this example of calculating GST when buying a flat in India.
- Property price per square foot Rs 6,000
- GST on affordable housing 1%
- GST value per square foot Rs. 6
- The price per square foot is based on GST Rs 6006.
GST on Residential Property: Prerequisites & Conditions
Certain conditions or prerequisites are required to be met in order to purchase a residential property with a 1% GST exemption. Housing projects will receive affordable housing under the following conditions.
- Non-metro-city residential real estate is categorized as affordable housing: The area of flats/houses/apartments under construction is 90 sq m with a price of 45 lakhs.
- Residential real estate in big cities is categorized as affordable housing: The area of flats/houses/apartments under construction is 60 sq m with price up to 45 lakhs.
Why is there no GST on finished flats?
If buying a completed house in a secondary transaction, Goods and Services Tax will not be charged on such sales transactions. It is, therefore, important to note that GST is only payable to contractors for construction procurement. Therefore, when buying a ready-made apartment so, when buying a finished apartment, GST is not available.
The application of GST to property depends on the authority issuing the Certificate of Completion. Suppose a certificate of the integrity of the property is obtained before payment to the seller. It is considered a sale of ready-to-move-in properties rather than an offering of goods or services. Therefore, GST is not charged on the sale of finished apartments.
Does GST apply to resale flats?
Buyers of resale apartments are not taxed under the Goods and Services Tax (GST). Buyers do not pay GST at the time of purchase, as the apartment is ready to move in and not subject to a work contract but if the buyer buys the property from a developer who pays GST during construction. Buyers are required to pay GST before buying a home. As advised by the GST Council, building buyers are subject to an 18% tax. However, it is 12% for properties under construction.
GST is one of the most important reforms in the real estate market. The tax affects developers and real estate buyers. So after reading all the facts, Now that you have the right idea of gst on residential property, GST is the only rate of 12% on properties under construction, while there is no GST on completed and ready-to-sell properties. In summary, the impact of GST on a residential project is somewhat similar to what you observed with respect to the previous tax system. However, the introduction of GST will make the system more transparent and accountable. More importantly, Buyers can get more benefits from many sub-taxes through GST.