GST Rate on Real Estate, Flat Purchase, Plot Sales – An Ultimate Guide!

November 21st, 2022

GST on Real Estate, Flat Purchase

Real estate market was significantly impacted by GST. Goods and Services Tax abbreviated as GST is a single domestic indirect tax that was passed in the parliament in March 2017 and has been in effect since 1st July 2017. This comprehensive and multi-stage tax is levied on the supply of goods and services on every value addition. It subsumes many other taxes such as excise, service, and even VAT and ensures minimal cascading of taxes thereby paving the way for an anti-inflationary approach.

Homebuyers buying an under-construction apartment are liable to pay GST on it. Completed projects i.e., those projects that have received their completion certificate from a competent authority are not liable to pay GST.

GST On Flat Purchase 2022

Both real estate buyers and developers must pay GST. In India, homebuyers of under-construction flats, apartments, and bungalows pay 1% GST for affordable housing and 5% GST on non-affordable housing. However, completed projects are exempt from this tax.

Understanding Input Tax Credit (ITC)

Before we delve deeper into GST, it is important to understand what an input tax credit (ITC) is. When you pay output tax, you can reduce the tax that you have already paid on the input, this is ITC. For example, if you’re a manufacturer of goods and the tax on your final product (the output) is Rs.500 and the tax paid on the purchases (the input) in making the final product is Rs.300, then you can claim an input tax credit of Rs 300, and only pay the remaining Rs.200 as taxes.

As a manufacturer, supplier, agent, aggregator, e-commerce operator, etc., registered under the GST Act, you are eligible to claim the input credit for tax paid by you on your purchases.

Claiming Input Tax Credit under GST

There are a few points to consider before claiming the ITC:

  • You must possess the tax invoice of the purchase made or the debit note issued by the registered dealer.
  • You should have received all the goods/services
    (If the goods are received in instalments, then the credit will be available against the tax invoice upon the receipt of the last lot or instalment.)
  • Tax on your purchases must be paid to the government by the supplier in cash or by claiming input credit.
  • GST returns filed by supplier.
  • Supplier has uploaded the invoice of their GSTR-1, which must reflect in GSTR-2B of the recipient or buyer.

GST on Luxury Houses or Apartments

Under the new GST regime, homebuyers can save more now than before. The new GST rates allow consumers to buy luxury properties at a lesser price since it is at 5% on the non-affordable housing segment. However, homebuyers cannot claim the input tax credit on it.

Luxury housing Before April 1, 2019 After April 1, 2019
Property cost per sq ft Rs 7,000 Rs 7,000
GST rate on flat purchase 12% 5%
GST per sq. ft. Rs 840 Rs 350
ITC benefit for a material cost of Rs 13,000 at an average of 15% Rs 126 Not applicable
Total Rs 7714 Rs 7350

 

Luxury housing is that which costs over Rs 45 lakh and has a carpet area which exceeds 90 square metres.

Understanding Affordable Housing Properties

A glance at the table below will detail the conditions of affordable housing properties. Also note that cities such as Chennai, Bengaluru, Delhi NCR (restricted to Noida, Delhi, Greater Noida, Gurgaon, Ghaziabad, Faridabad), Kolkata, Hyderabad and Mumbai are metropolitan cities.

Particulars Conditions
Affordable Housing for metropolitan cities 1. A residential house/flat having a carpet area of up to 60 sq m.

2. The gross amount charged cannot exceed Rs. 45 Lakhs.

Affordable Housing for non-metropolitan cities 1. A residential house/flat having a carpet area of up to 90 sq m.

2. The gross amount charged cannot exceed Rs. 45 Lakhs.

 

Conditions Governing 1% GST on Affordable Housing Properties

To avail of the benefit of the lower GST rate of 1%, developers/promoters are required to fulfil the following conditions:

  • The Input Tax Credit (ITC) cannot be claimed.
  • 80% of the value of the inputs and input services should be purchased from the registered persons.
  • If there is a shortfall in the value of 80%, the promoter/developer will have to pay tax at 18% on a reverse charge basis. (Reverse charge is referred to the tax paid by the recipient of the supply of goods instead of the supplier, with regard to notified categories of supply)
  • Purchase of cement and capital goods must be from a registered person. If they have been purchased from an unregistered person, the developer/promoter is required to pay a tax of 28% on cement & the applicable tax on capital goods, on a reverse charge basis.
  • If there is a supply of development rights or supply of FSI against the construction of apartments, the tax shall be paid by the developer/promotor towards the supply of construction service to the landlord.
  • GST shall be paid by debiting the ‘electronic cash ledger’.

GST on Construction and Building Materials

While GST does not directly impact the real estate industry in India, it applies to various services of the sector under the new regime. For example, 8% GST is applicable to under-construction homes bought under the Pradhan Mantri Awas Yojana (PMAY) Credit-Linked Subsidy Scheme (CLSS). 12% GST is applicable for an under-construction home bought without the subsidy and 12% is also applicable for works contracts for affordable housing.

GST is covered in India through building and construction works and works contracts, as the components involved in the development work attract GST. This is done through several levies imposed on the purchase of various building construction materials.

 

Particulars Applicability Rate of Tax Input Tax Credit
On ready-to-move (RTM) properties for which completion certificates are issued Not applicable – Because the Sale of a building is treated as an activity or transaction which shall be treated neither as a supply of goods nor a supply of service as per SCHEDULE III of CGST Act, 2017 Not available
On Under Construction Properties (For Homes Purchased Under Credit-Linked Subsidy Scheme) Applicable as a supply of service as per Schedule I of CGST Act, 2017 8%* Available
On Under Construction Properties (Other than above) Applicable as the supply of services as per Schedule I of CGST Act, 2017 12% Available
On resale properties Not applicable Not available
On Land purchase and sale Not applicable. As per Schedule III, the sale of land is neither supply of goods nor services. Not available
Works contract Applicable 18% Available
Composite supply of works contract Applicable 18% Available
Composite supply of works Contract to Government Authorities Applicable 12% Available
Composite supply of works contract – for use by the public Applicable 12% Available
Composite supply of works contract – Affordable Housing Applicable 12% Available

NOTE: The homes purchased under the Credit-Linked Subsidy Scheme (CLSS) attract a 12% GST rate. The applicable rate will be 8% after cutting the 1/3rd amount towards the cost of land.

Taxes Before GST

During the indirect tax regime, both the state and the centre levied a series of indirect taxes. Every state had a different set of rules and regulations and they largely collected taxes in the form of Value Added Tax (VAT).

The Central State Tax (CST) was applicable in the case of inter-state sale of goods. The state and the centre levied indirect taxes such as the local tax, entertainment tax, or the octroi. This only led to a lot of overlapping of taxes levied by both – the state and centre, which is called the cascading effect of taxes.

The following is a list of all the indirect taxes before GST:

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

All the above taxes have been replaced by the CGST, SGST, and the IGST.

However, there is still a provision to avail GST for inter-state purchases at a concessional rate of 2% by utilising ‘Form C’. This applies to certain non-GST goods such as:

  • Petroleum crude
  • High-speed diesel
  • Petrol
  • Natural gas
  • Aviation turbine fuel
  • Alcoholic liquor for human consumption

GST on Maintenance Charges for Housing Societies

Housing societies with an annual turnover of less than Rs 20 lakh are exempt from paying GST. An 18% GST on residential properties is applicable if the flat owners pay at least Rs. 7500 as maintenance charges. For GST to be applicable, each member should be paying over Rs. 7500 every month as maintenance charges and the Residents’ Welfare Association should have an annual turnover of Rs. 20 lakh. If the maintenance charges exceed Rs. 7500, then the 18% GST is taxable on the entire amount. RWAs can claim ITC on the tax paid by them on capital goods such as water pumps, generators, lawn furniture, taps, pipes, sanitary fittings, etc.

GST on Rent

Tenants who lease a residential unit are liable to pay 18% GST on the rent amount, as per an amendment by the GST Council in July 2022. GST is mandatory for Individual service providers earning over Rs 20 lakh a year and businesses generating an income above Rs 40 lakh annually.

GST on Home Loan

GST doesn’t apply to home loan repayment as far as the borrower is concerned. However, financial institutions offer several ‘services’ and these come under the purview of GST. Also, while availing a home loan, the banks will charge you GST on the processing, technical valuation, and legal fees.

Did you know this about GST?

  • Residential projects with up to 15% commercial space, are treated as residential properties under GST.
  • The effective GST on commercial property is 12%.
  • You do not have to pay any GST on the purchase of plots.
  • You do not have to pay any GST on buying a flat that is ready to move in.
  • Landlords do not have to pay GST unless the tenant is a business company.
  • GST on house registration: GST does not subsume stamp duty or registration charges; you still must pay these duties while buying a property.
  • GST applies to the services that banks offer, as part of the home loan, including processing fees, legal fees, etc.
  • GST has subsumed at least a dozen other taxes.
  • Sellers increase the cost of ready-to-move-in properties, to factor in the GST cost.
  • Despite the applicability of GST, under-construction homes are cheaper than ready homes.

Rate of GST on Developable Land

If you are investing in developable plots, then you can heave a sigh of relief as GST will not be applicable. As per the circular issued by the Central Bureau of Indirect Taxes and Customs on Aug 3, 2022, developable plots do not attract GST, even if basic infrastructure has been developed. Before GST, the sale of immovable properties attracted direct taxes such as stamp duty and registration charges that were paid during transactions.

GST on Plot

The sale of plots doesn’t attract GST generally. However, even a small construction on the plot could mean that one would have to pay GST. In such cases, one-third of the value of the plot will be excluded and GST will be levied on the remaining two-thirds value of the plot.

GST on Flat Registration

Flat registration doesn’t attract GST and will therefore not be paid at the time of registering the property. Property transactions in India continue to charge stamp duty and registration charges.

Summary:

Hailed as one of the biggest tax reforms of the country, the Goods and Services Tax (GST) has successfully subsumed many indirect taxes which were once imposed by the state and the centre. The GST has been a boon to micro, small, and medium enterprises, and the MSMEs are now less dependent on tax experts when compared to the earlier regime. This one nation, one tax system is aimed at improving India’s competitiveness in the global markets, while leading to a reduction in costs of doing business.

FAQ’s:

1. Is GST applicable on the purchase of a ready-to-move-in flat?

No. GST is not applicable on ready-to-move-in flats.

2. Who is responsible for paying the GST on flat purchases?

Homebuyers or investors are liable to pay GST in the field of real estate.

3. What is the current GST rate on a flat purchase?

GST for residential properties without ITC is 5% and 1% for affordable housing without ITC.

4. What are the three different types of GST?

In India, GST is of three types they are Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax (UTGST), and Integrated Goods and Services Tax (IGST).

5. Is real estate subject to GST?

Only under-construction properties that have not received an Occupancy Certificate (OC) are subject to GST.

6. How do you calculate GST on a flat in 2022?

For under-construction non-affordable properties, a GST of 12% is applicable with ITC and 5% without ITC. For affordable under-construction properties, a GST of 8% is applicable with ITC and 1% without ITC. Completed projects do not come under the purview of GST.

7. Who pays GST builder or buyer?

The homebuyer must pay GST to the builder.

8. How do I claim a GST refund on a flat?

GST doesn’t apply to completed projects, but it applies to under-construction properties. For the latter, one cannot claim a GST refund.

9. How can I avoid paying GST on my property?

If you’re looking to minimise the amount of GST you might be paying, then the Margin Scheme may be of help. It helps avoid double taxation on the supply of goods which has already been taxed. Under this scheme, you’d only have to pay GST on the profit margin of the sale.

10. Is GST refundable on the cancellation of the flat?

For under-construction flats where the builder has already paid GST to the government, you would have to send an application to the GST Council seeking a refund since your booking is cancelled. The booking amount must be refunded by the builder after deducting the agreed-upon penalty charges if any.

11. Is GST applicable on the sale of an old flat?

Since an old flat will have an Occupancy Certificate and is considered a ready-to-move-in flat, it doesn’t come under the purview of GST.

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