Buying a home is a significant life milestone for many. However, the journey to homeownership often comes with multiple financial considerations, one of which is the Goods and Services Tax (GST). The implementation of GST on flat purchases has significantly impacted home buyers, transforming the overall cost of owning a home and influencing decision-making processes.
Whether you're a first-time buyer or a seasoned investor, understanding the GST's role in real estate is crucial for making informed decisions. In this blog, we'll delve into the intricacies of GST for new flat purchases and its impact on home buyers.
What is GST on property in India?
Launched in 2017, GST is a comprehensive tax levied on every value addition. In the real estate sector, GST directly affects the cost and pricing of properties, including flats.
In India, GST on property is levied on the sale of under-construction properties or properties that are still in the development phase. This tax does not apply to ready-to-move-in flats or resale properties, as these are considered completed projects where GST has already been paid during the construction phase.
The current GST rate for under-construction properties, including affordable housing, is relatively lower as compared to the previous tax regime, which included multiple taxes such as VAT, Service Tax, etc. This not only streamlines the process and brings more transparency but also reduces the tax burden of home buyers.
GST rate for flat purchase in 2024
The GST applicable in flat purchases depends on the type of property you are buying.
Type of property
GST rate
GST on flat purchase - under construction (affordable housing)
1% without Input Tax Credit (ITC)
GST on flat purchase - under construction (non-affordable housing)
5% without Input Tax Credit (ITC)
GST on read-to-move flats
Nil
Impact of GST on home buyers
GST on flat purchases significantly impacts home buyers in several ways:
1. Price transparency
GST has streamlined the tax structure, making it more transparent. Buyers now have a better understanding of the taxes they are paying, as the multiple indirect taxes that were previously applicable have been combined under GST.
2. Increased affordability in some segments
For affordable housing, the reduced GST rate of 1% without Input Tax Credit (ITC) has made these homes more affordable for buyers. This is particularly beneficial for middle-income groups and first-time home buyers.
3. Impact on non-affordable housing
Although the 5% GST rate for non-affordable housing is higher than that for affordable housing, it is still considered quite reasonable by many. However, the elimination of ITC means that developers can no longer claim tax credits on construction costs. This might result in higher overall project expenses and ultimately, increased prices for buyers.
4. Clarity in taxation
The uniform GST rate across the country has brought more clarity in terms of taxation, as compared to the earlier system where VAT and service tax rates varied from state to state.
5. Impact on under-construction properties
GST is applicable only on under-construction properties. Therefore, buyers opting for ready-to-move-in properties can avoid paying GST, which can be a significant saving.
Understanding GST on flat maintenance charges
When purchasing a flat, you might also have to pay GST on the maintenance charges. If the total maintenance charges collected by a residential welfare association or society exceed Rs. 7,500 per member per month, and if the society’s annual turnover is Rs. 20 lakhs or more, then GST at the rate of 18% is applicable.
The maintenance charges may include various components such as property tax, water bill, electricity charges for common areas, and more. However, societies can claim ITC on GST paid on various goods and services used for maintenance purposes to reduce the overall cost of maintenance for members.
Societies that are liable to pay GST must also comply with GST filing requirements. This includes obtaining GST registration, issuing tax invoices, and filing GST returns. It is important to note that GST does not apply to property tax and non-taxable services.
What happens if you cancel a flat purchase?
According to the GST laws, if a buyer cancels the booking of a flat before taking possession, the GST paid on the advance amount can be refunded. This is because the GST is paid on the transaction of sale, which is not complete until the possession of the property.
In such a situation, the developer or builder will be responsible for refunding the GST amount to the buyer. They can then claim a refund of this amount from the government.
But while GST can be refunded, the builder may deduct a certain amount as cancellation charges before refunding the booking amount and GST. The percentage or amount of these charges varies depending on the builder's policy and the terms of the agreement. Additionally, the buyer should ensure that they have all documentary evidence of the cancellation and the amount paid for processing the GST refund.
Simplify your home ownership journey with Tata Capital
Navigating the intricacies of GST on flat purchases is crucial for any home buyer. From determining the applicable GST rates to understanding its impact on overall costs and maintenance charges, it plays a significant role in your financial planning. As a home buyer, staying informed about these aspects will help you make informed decisions, ensuring your dream home doesn't become a financial burden.
If you're planning to buy a flat and looking for financial assistance, Tata Capital’s home loans offer attractive interest rates and easy EMI options. Our handy home loan EMI calculator further helps you determine your potential EMIs and plan your finances effectively. Visit our website to apply online for a seamless borrowing experience.
16 February 2024
5 mins read
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