On July 1, 2017, the implementation of the Goods and Services Tax (GST) marked a pivotal change for numerous Indian enterprises, particularly those entrenched in the real estate sector. This blog delves into the relevant GST implications when buying homes, apartments, and various other types of real estate that have been negatively influenced by this taxation scheme. Our discussion primarily revolves around the GST applicable to residential property sales.
What is the GST on Residential Property in India?
Prior to the introduction of the GST, property buyers faced significant complications and stress due to multiple taxes, such as the central excise duty and value-added tax (VAT), among others. The taxation landscape was undoubtedly convoluted and unclear during that time. However, the arrival of GST has transformed this situation.
When acquiring residential properties, the initial GST rates were set at 8% for affordable housing and at 12% for other types of residential homes. This system allowed buyers to take advantage of the Input Tax Credit (ITC) based on the original GST rates.
Nonetheless, after the 33rd GST Council meeting, new and revised GST rates were established, which took effect on April 1, 2019. Under this new framework, the GST rate for affordable housing units was significantly lowered to 1%. Conversely, for luxury properties, the GST was set at 5%, with no provision for ITC.
GST on Residential Property
In instances where properties are located in one of India’s major cities, GST becomes applicable. However, if one is purchasing residential real estate within completed complexes, such as condominiums or finished apartments, these are exempt from GST if they come equipped with an occupancy certificate.
GST on Residential Property
| Residential Property Type | GST until March 31, 2019 | GST As Of April 1st |
|---|---|---|
| Luxury or Unaffordable Housing, Unless Under Construction | 12% + ITC | 5% Excluding ITC |
| Building Affordable Housing | 8% + ITC | 1% Excluding ITC |
| For finished residential projects (available for immediate occupancy) | GST not Applicable | GST not Applicable |
GST on Residential Property: Prerequisites & Conditions
For purchasing a residential property qualifying for a 1% GST exemption, certain conditions must be met. The housing development needs to conform to the following criteria to be categorically considered affordable housing:
- Residential real estate outside metropolitan areas must not exceed 90 square meters and should be priced at 45 lakhs or lower.
- Affordable housing within major cities must consist of flats or houses with a size limit of 60 square meters and a price cap of 45 lakhs.
For Flat Purchases, You Need 1% GST. Meet These Requirements
To qualify for a flat GST rate of 1%, one must procure a minimum of 80% of the raw materials from registered dealers. If this condition is not satisfied, the developer for the housing or apartment project must bear a Reverse Charge Mechanism (RCM) paying 18% GST.
It's also important to note that affordable housing still under construction will not qualify for the Input Tax Credit. This means the buyer is not allowed to deduct the GST expenses from their income when purchasing the property.
The Impact of GST on Real Estate, Conclusion
Since the implementation of GST, significant reforms have reshaped India’s real estate landscape. Previously, housing developers were burdened with paying various fees for permits, service taxes, legal expenses, excise duties, VAT, customs duties, etc., all of which adversely influenced their pricing strategies and consequently increased costs for property buyers.
With GST, this matrix of fees has been streamlined and clarified. By adjusting the real estate tax to 12%, the latest GST tax regime has notably eased the financial burden placed on property buyers. Over time, due to adjustments made by the GST Council in 2019, property acquisition in India has increasingly become an accessible prospect.