Everything You Need to Know About Housing GST

GST

Goods and Services Tax that came into existence from 1st July 2017 greatly impacts various businesses in India. Indeed, it has replaced several taxes and made it one of the major tax revenue sources for the Government of India too. The impact of GST in India is positive as it is levied on the goods and services offered at multiple stages. The introduction of GST majorly avoids the inefficiency of the tax system in India. The cascading tax system is no longer available in the system.

Taxes before GST implementation

The indirect tax scheme that existed earlier had multiple taxes implemented and levied on goods and services. The taxes were levied by both centres as well as the state. Different states had different rules and regulations, and they charged VAT predominantly.

At the same time, if there is an inter-state sale, Central State Tax was levied. Moreover, many other indirect taxes like Entertainment, Octroi, and Local Tax were levied collectively by the centre and the state. That means to say; there was a severe overlap of taxes on taxes.

The list of taxes that existed before GST is mentioned below

Central Excise Duty Central Sales Tax
Duties of Excise Purchase Tax
Additional Duties of Excise Luxury Tax
Additional Duties of Customs Entertainment Tax
Special Additional Duty of Customs Entry Tax
Cess Taxes on advertisements
State VAT Lottery, betting and Gambling Taxes

The advent of CGST, SGST and IGST has replaced all the taxes mentioned above.

Implementation of GST and its Benefits

As such, it replaced several tax norms that existed before and the implementation of GST has several benefits for the consumers and businesses. While we learn this, we must know the objectives behind the implementation of GST.

  1. Subsume Many taxes
  2. Elimination of cascading effect of taxes
  3. Curbing Tax Evasion
  4. Increase the Base of taxpayers
  5. Develop online procedures to ease the business operations
  6. Enhanced Logistics and Distribution System
  7. Increase consumption with the help of competitive pricing

The advent of GST has the following benefits too

  1. GST registration – A higher threshold
  2. Scheme of Composition for Small and medium businesses
  3. Online compliance measures with the help of online procedures
  4. Fewer Compliances under GST
  5. E-commerce activities are well defined
  6. The efficiency of Logistics shall improve
  7. Unorganized sectors are organized now

GST Consumed Central and State Taxes

The tax list that was subsumed, has been given in the previous columns. However, let us see in detail which taxes levied by the state and center were absorbed by the implementation of GST.

The central taxes existed before

  1. Central Excise Duty
  2. Medicinal and toilet – Duty on Excise
  3. Especially important Goods – Additional Duties of Excise
  4. Textile products – Additional Duties of Excise
  5. CVD
  6. SAD
  7. Service tax
  8. Central Surcharges
  9. CESS

The state taxes existed before

  1. State Value Added Tax
  2. Central Sales Tax
  3. Luxury Tax
  4. All forms of Entry Tax
  5. Entertainment Tax
  6. Amusement Tax
  7. Advertisement Tax
  8. Betting, Lottery, Gambling
  9. State Surcharges
  10. CESS

GST Rate on Real Estate

The GST on Real Estate has reduced too many taxes that involves in the process. The Value Added Tax, Registration charges, Service charges, and service tax is subsumed. The tax rates differed from state to state as well. The advent of GST has simplified the tax, and right now, it ranges from 5% to 18%. Of course, the rates depend on a few factors, and let us see the same below.

Real Estate Property GST Rate
Residential Property – Non – Affordable Housing Segment) 1% without Input Tax Credit
Residential Property – Affordable Housing Segment) 5% Without Input Tax Credit
Commercial Property 12% With Input Tax Credit

GST and Real Estate have blended well and offered various benefits to the consumers.

Input Tax Credit

The input Tax credit is the mechanism of reducing the tax on the output as you would have paid the tax while purchasing the raw materials. India’s ITC construction group is a great benefit as you can claim it once you pay the tax for the output delivered. This scheme is available for every business that is registered under the GST act. That means to say; if you are a building contractor, you can claim the tax credit that you have paid during the purchase.

GST Rates on Construction Materials

Gst On Flat Purchase has two important components involved in it.

  1. Goods
  2. Services

The goods purchased for construction of the building have GST, and the service of construction by itself has GST too. So, if there is an 18% GST, then CGST shall be 9%, and SGST shall be 9%. The same goes good with 12% GST as well. Both the GSTs add up to the cost for the consumer.

Construction Material – GST
Bricks 5%
Granite/ Marble 5%
Fly Ash blocks 5%
Tiles – Roof 5%
Sand 5%
Marble/Granite blocks 12%
Refractory bricks/tiles 18%
Glass 18%
Prefabricated components 18%
Marble/Granite (other than blocks) 18%
Portland/Slag Cement 28%

Construction Services – GST

As the construction material purchase has GST, the construction services are also included in GST. As discussed earlier, it adds to the Gst on Property which revises the final value of the building.

Construction Services – GST
Building Under Construction – Credit Linked Subsidy 8%
Building Under Construction – Other than Credit Linked Subsidy 12%
Supply of Works – Affordable Housing 12%
Supply of Works – Government 12%
Supply of Works – Apart from the above 2 elements 18%
Work Contract – Apart from Government Bodies 18%

The contractor GST limit involves only the construction materials and the services offered. However, the below-mentioned activities do not come under GST.

  1. Ready to Move in Flat Sale
  2. Resale of the House/Property
  3. Sale or Purchase of Land

In the cases mentioned above, the GST on the sale of real property is not applicable under the act.

Affordable Housing Segment

The Affordable Housing Segment of the residential properties comes under a few criteria. This factor determines the GST on New Homes. The key criteria are

  1. If the residential property is in the metropolitan city, then the total carpet area of the building must be 60 Square metres and below.
  2. If the residential property is in the town or non-metropolitan city, then the total carpet area of the building must be 90 Square metres and below.
  3. The value of the property must be INR 45 lakhs in either of the cases.

GST on maintenance charges for housing societies

The monthly maintenance charges that the residents pay to the Cooperative Housing societies or the Resident Welfare association is exempted if the maintenance charge is less than INR 7,500/-. Earlier, it was set a limit up to INR 5,000/-

Further, if the monthly maintenance exceeds, you may have to pay GST of 18% for the entire amount. For example, if the monthly maintenance is INR 10,000, then you must pay GST of 18% for the whole 10,000 and not the difference between the set limit and charged amount.

GST on Rental properties

We have two cases in this regard. Residential Property and Commercial property. When an individual rents out a residential property, the rent is exempted from GST. Whereas, if the building is rented out for business, i.e., for commercial purposes, the rent shall incur a GST of 18%.

Home Loan – GST

While there is GST on House Sale, the loan taken to purchase the house also incurs GST. 18% of GST is charged on home loans, exclusive of the processing fee charged by the banks. The GST is charged on processing, technical valuation and legal fee. That means to say; it impacts the consumers who are planning to purchase a new house. At the same time, with the number of taxation processes earlier, the amount spent now on tax is fairly less now.

GST on Government Housing Schemes

GST on flat purchase under Government housing schemes is less compared to the private property builders. There is a charge of 1% as GST for the purchase.

Impact of GST on Affordable Housing Property

While there is GST on under-construction flats pdf, the affordable property purchase can result in lower prices. As the ready-to-move-in flats do not have any GST. At the same time, if it is under the affordable property segment, then the rate is sketched at 1%.

GST on Luxury Property

The new GST rates have given the luxury for the consumers to buy luxury properties at a very less price. The GST on flat purchase is 5% if it is in the non-affordable housing segment.

Can GST tweak help increase sales in Real Estate Sector?

With the GST rates slashed by the Government on real estate, there is absolutely nothing to reduce in the sector; the industry bodies suggest reducing GST in various goods and services related to the real estate business. The simple option to reduce the price is to reduce the GST. If the construction tax rate reduces, then the sales can automatically increase. This is on the cards though.

Can GST Increase Sales

With the builders investing crores of rupees in the project earlier, the post-pandemic scenario does not make them reduce the price of the flats. However, the lucrative measure is to reduce the GST. Of course, many builders have succumbed to the offer of a full GST waiver on flat purchases too. It might increase sales shortly.

Facts on GST – Real Estate

  1. GST is not applicable for ready to move flats but charged for under-construction projects
  2. If there is a 15% commercial space in the residential property, it is still treated as residential property under the GST act.
  3. The commercial property GST is at 12%
  4. Is there a GST on Land sales? No
  5. Even the landlords do not have to pay GST if the tenant is a resident and does not do business in the property.
  6. Even if the GST is applicable for under-construction flats, it works out cheaper than the flats’ ready-to-move-in flats.

GST on Developable Plots

A plot that can develop after getting permission from local and municipal authorities to make it a land parcel is considered a developable plot. Such plots include a GST of 18%.

Stamp Duty and Registration Charges

Even with the presence of GST, there are still stamp duty and registration charges to be paid. The government has made no steps to curb the same.

The stamp duty charges range from 5% to 10%, while the registration charges are 1% of the property’s value, or a standard fee is also charged in a few states.

Real Estate – GST TimeLine

2000 – A panel was set to design the GST model

2004 – It was first recommended to replace all the taxes

2006 – During the budget speech, the then Finance Minister, set 2010 as the deadline to implement GST

2011- 115th Constitution Amendment Bill to introduce GST

2014 – Cabinet approves the Bill

2015 – Lok Sabha passes the Bill

2016 – Four Slab Structure was introduced

2017 – GST was introduced in India

Is there any Further GST cut in the Future?

There is no scope for it. As the real estate owners have started selling houses waiving off the GST and the affordable housing scheme at its all-time low, there is no possibility of further reducing GST rates for real estate.

Latest News on GST

Failed Land transactions attract GST. If the land is supposed to be purchased and the buyer pays the advance amount but not the full amount, it is still considered a Service, and GST is charged.

GST rate reduction often may not benefit the industries. It must be done once a year after a thorough analysis.

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Frequently Asked Questions (FAQ’s)

What is the GST rate on real estate?

1% GST on affordable residential properties without ITC and 5% for non-affordable properties without ITC

How do you calculate GST on real estate?

It is calculated based on Construction materials and construction services. These two combine to form the GST for the buyers.

How do you calculate GST on a 2021 flat purchase?

There is no GST for ready move in flat. However, under-construction flats incur a GST of 1% if under the affordable residential segment; if not, it is 5%.

What is GST for an under-construction property?

The GST rate in the affordable housing segment is 1%, and the non-affordable housing segment is 5%.

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