Understanding GST Implications on Residential Property Purchases
Property buyers in India face nuanced Goods and Services Tax (GST) regulations concerning their acquisitions. The GST regime pertaining to real estate has seen adjustments in recent years. Therefore, prospective investors and homebuyers must diligently assess the potential influence of GST on their real estate investment strategies.
What is the GST Rate for Residential Construction?
As of 2022, individuals investing in under-construction projects across India are subject to GST. This levy does not extend to completed projects possessing a completion certificate from the relevant authority.
| Property Type | GST Rate through March 2019 | GST Rate in April 2019 |
|---|---|---|
| Affordable Housing | 8% with ITC | 1% without ITC |
| Unaffordable Housing | 12% with ITC | 5% without ITC |
| Commercial Space (> 15% of Total Carpet Area in Residential Property) | 12% with ITC | 5% without ITC |
Residential Property GST Rate when Renting
- GST does not apply to residential rentals, irrespective of the landlord's GST registration status.
- For business entities renting residential properties, the GST rate is 18%.
- No GST applies to properties rented by private individuals for personal use, even if the tenant is GST-registered.
How do I pay GST on a flat?
Housing societies with a minimum maintenance charge of ₹7,500 per apartment are required to collect 18% GST on that amount. This tax is applicable if the Residents Welfare Association (RWA) meets the following criteria:
- A monthly maintenance fee of ₹7,500 or more per member.
- An annual turnover of at least ₹20 lakhs.
It's important to note that if monthly charges are above ₹7,500, the entire amount becomes taxable. For example, if the fee is ₹12,000, the 18% GST applies to the entire ₹12,000, not just the difference of ₹4,500.
Furthermore, if someone owns multiple units within the same housing society, GST must be paid separately for each unit.
Why is there no GST on completed flats?
Completed homes bought in secondary transactions are exempt from GST because they are not considered goods or services. GST pertains only to payments to contractors for construction services. Therefore completed or used apartments are exempt because no construction service occurs. The issuance of a completion certificate by the competent authority is crucial for GST classification. This certificate establishes that the sale is for a ready-to-occupy property rather than a provision of construction services.
What if the buyer fails to pay GST?
If a buyer hasn't registered under GST laws, the seller can claim a refund for pre-GST taxes and duties, provided the goods were purchased and returned within six months of July 1, 2017.
Is GST applicable on Resale flats?
Resale flats are generally exempt from GST. As these properties are ready to move in, they do not fall under the works contract. However, an exception arises if the buyer purchases from a developer who paid GST during the property's construction phase. In such an instance, buyers are required to pay the applicable GST amount before purchase, typically 18% as recommended by the GST Council, compared to 12% for properties under construction.
How to avoid paying GST?
You can avoid paying GST on a flat purchase by:
- Buying a completed flat with a completion certificate.
- Purchasing a used or resale apartment.