Impact of GST on homebuyers: A detailed overview


The real estate market has undergone significant reforms with the implementation of GST (Goods and Service Tax), particularly concerning flat purchases. The main emphasis is on how families and investors spend on residential properties. The introduction of GST on flat purchase, especially in metropolitan cities, has notably simplified the property-buying process for buyers, adding both clarity and ease to the decision-making process.

The need for GST on flat purchases

Before the implementation of GST on flats in India, homebuyers dealt with multiple indirect taxes, such as service tax, VAT, and stamp duty. These indirect taxes varied across states, causing complexity and confusion in property transactions. The introduction of GST aimed to streamline the taxation system by consolidating multiple taxes into a single, more efficient tax. Moreover, the application of GST to both under-construction and new homes has contributed to maintaining transparency.

GST rate on flat purchases

GST applies different tax rates depending on the type of property you acquire. Even if you're buying a flat under construction, you'll have to pay GST. According to the latest GST rates, the applicable flat purchase GST rate is 1% for affordable housing segments. In comparison, it is 5% for non-affordable or premium housing units without Input Tax Credit (ITC). New flats are subject to a GST rate of 12% with Input Tax Credit and 5% without ITC.

If you're considering purchasing a ready-to-move-in new apartment, it's important to note that GST does not apply in such cases. However, ensure that the completed projects have obtained a certificate of completion from the relevant authorities.

Conditions for 1% GST exemption on residential real estate

To qualify for the 1% GST exemption on residential property, home buyers must meet certain conditions:

Affordable Housing Criteria:

  • Metro Cities: The property falls under affordable housing if the area of the under-construction house is 60 sq.m. and the price is up to 45 lakh.
  • Non-Metro Cities: It is affordable housing if the area of the under-construction house is 90 sq.m., and the price is up to 45 lakh.

Raw Material Procurement:

To qualify for the 1% GST rate on flats, the developer must purchase a minimum of 80% of the raw materials from a registered dealer. Failure to meet this condition will make the developer responsible for paying 18% GST under the Reverse Charge Mechanism (RCM).

No Input Tax Credit (ITC):

The 1% GST payable on affordable housing under development does not include Input Tax Credit. Therefore, the GST paid during property acquisition cannot be deducted from your income, leading to no reduction in your yearly income tax.

GST calculation for flat purchases in India

To determine the GST on affordable and non-affordable property purchases in India, it's crucial to understand the specific parameters for each category. Here's a sample breakdown of the calculations:

Calculating GST on affordable property:

Consider a property with a cost of Rs 6000 per square foot.

  • The GST on the affordable housing segment: 1%
  • GST value value per sq. ft: Rs 6
  • The final price per sq. ft is Rs. 6006.

Calculating GST on Non-affordable Property:

Consider a property with a cost of Rs 10,000 per square foot.

  • GST on affordable housing segment: 5%
  • GST value per sq. ft: Rs 50
  • Price per sq. ft after GST: Rs. 10,050

What are the economic implications of GST on flats?

Real estate significantly contributes to the country's GDP and drives development and growth. The implementation of uniform GST in real estate has simplified buying and selling processes. This streamlined real estate market positively impacts the economy.

Uniform GST enhances transparency, attracting foreign investments and offering growth opportunities. Clear financial records and adherence to taxation norms by builders also reduce risks and fraud.

The final word

The implementation of GST has significantly reformed the real estate market, simplifying the property-buying process for homebuyers. This focus on tax uniformity has positively impacted the economy, fostering transparency and attracting investments.

Frequently Asked Questions

Q: How does GST simplify the property-buying process?

A: GST simplifies the process by consolidating multiple indirect taxes, ensuring uniformity and transparency in the real estate market.

Q: What are the GST rates for different types of flat purchases?

A: It is 1% for affordable housing and 5% for non-affordable or premium housing units without Input Tax Credit.

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