How to Calculate GST on Real Estate Property Purchase?

GST is India's most significant post-independence tax reform. With its 'One Nation, One Market, One Tax' philosophy, the GST regime, which went into effect on July 1, 2017, has changed the Indian economy.

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How to Calculate GST on Real Estate Property Purchase?

When it comes to meeting tax requirements, buyers must pay the applicable GST on their property purchase in addition to property taxes. Several adjustments to the GST regime aimed at the real estate sector have been introduced in recent years. To make an informed decision about investing in this industry, potential investors and homebuyers must examine the impact of GST on real estate.

Also Read: Latest GST Reforms in India for Homebuyers

Where Does GST Apply In Real Estate?

For under-construction properties, investors and homebuyers must pay GST. Several taxes, such as VAT, stamp duty, service tax, registration fees, and others have to be paid by home buyers before the advent of GST.

With the introduction of the GST on real estate, only under-construction properties are subject to taxation. Notably, GST is not payable on homes that are ready for sale or completed and have a valid Completion Certificate.

GST’s Impact on the real estate purchases

In India, the real estate sector contributes about 7.8% of the country’s GDP. After the IT industry, this is the second most important source of employment. The adoption of GST on the property industry aims to increase transparency in its operations and address the sector’s underlying issues.

With that in mind, let’s take a look at the impact of GST on the real estate industry and its primary components.

Also Read: Impact of GST on Rental Income

  • Impact on affordable property

Homebuyers have more certainty about their tax liability thanks to the GST, and this regime provides them with more openness. Even a little drop in GST rates allows homebuyers to save more money on their purchase, lowering the property’s cost. In particular, the GST rate for under-construction dwellings under Rs.45 lakh and government-sponsored housing schemes is 1%.

This table compares the GST on low-cost housing before and after April 1, 2019.

Affordable housing 

GST applicable on affordable housing (before 1st April 2019)

GST on affordable housing 

Property cost (per sq ft)

Rs.3500

Rs.3500

Applicable GST rate residential flats purchase

8%

1%

GST amount (per sq ft)

Rs.280

Rs.35

Input Tax Credit benefit for construction material of Rs.1500 @ 18%

Rs.270

N/A

Total GST Amount

Rs.3510

Rs.3553

Property cost (per sq ft)

Rs.3500

Rs.3500

  • Impact on luxury property

Homeowners can save more money on their property purchases with the new GST rate on real estate than they could under the previous tax structure. The new GST rate for a luxury property is 5%, although no input tax credit can be claimed.

  • Impact on under-construction property

The sale of the under-construction property has slowed during the last few years. The government has slashed GST rates to revitalize the sector. The government has also doubled the amount of money that can be deducted for housing credit interest repayments as a tax deduction. This strategy benefits not just home loan borrowers, but also developers, as it allows them to dispose of stock more quickly. As a result, they are relieved of the burden of paying taxes on accumulated inventory.

  • Impact on registration charges and stamp duty

Under the GST on the real estate regime, the registration and stamp duty fees are unaffected. The registration fee is normally 1% of the property value; however, the state may levy it as a standard price in rare cases. Stamp duty, on the other hand, is imposed at a rate of between 5% and 10%.

Individuals, on the other hand, are exempt from paying GST on their flat registration. Because stamp duty and registration fees account for such a substantial amount of state revenue, it is questionable whether states will eliminate them or bring them within the GST regime.

Read Also: GST on rental- Everything you should know!

GST Calculation on Real Estate

One can simply estimate the GST on the property by taking into account the cost of the property, the applicable GST rate, and additional taxes. To put it another way, the GST liability is calculated by adding the State GST and the Central GST together.

As an example,
gst calculation
                                                                                   Example of GST Calculation

This basic example demonstrates how GST is calculated on property that is still under construction.

Let’s say a buyer purchases an under-construction property for Rs.1000. After taking into account the usual abatement on the under-construction property, the GST on the property in question is calculated.

As a result, after subtracting 33 percent, the land value will be Rs.330. Following that, GST on the property will be calculated using the appropriate rates on the remaining Rs.770.

GST Exemptions on Real Estate

Ready-to-move-in properties are not considered goods or services under Schedule III of the GST Act of 2017. It’s more akin to making a home buy or sell. This is why GST is not charged on properties that are ready to move in and have a valid Completion Certificate. Individuals would also be exempt from paying GST on resale properties and land purchases and sales.

Aside from the exemption, real estate developers can use the GST system to claim Input Tax Credit on construction materials. Notably, developers must achieve a few particular criteria to be eligible for such a bonus. To proceed with the claim, for example, developers must –

  • Submit construction material invoices/receipts.
  • Goods and services must be delivered to the developer.
  • Personal claims for goods and services will not be considered.
  • All outstanding debts must be paid.
  • GST returns must be completed correctly.

Key Points to know about GST on Real Estate

  • Residential property with up to 15% commercial space will be considered as residential property under GST.
  • A commercial unit is subject to a 12 percent GST.
  • Only if the tenant is a commercial firm does the landlord have to pay GST.
  • On house loans, GST is charged on services such as legal fees, processing fees, and so on.
  • Even after accounting for GST, under-construction residences are less expensive than ready-to-move-in projects.

According to sources, demand for ready-to-move-in and small-size housing units increased in the first quarter of 2021. More people are expected to be drawn to this sector as a result of the availability of fantastic deals on real estate projects and the expanded scope of negotiation.

Regardless, potential buyers should think about a few key factors before investing in this industry. Individuals should consider their investing horizon, for example, because real estate is best used as a long-term asset. They should also consider their ability to pay financial commitments, such as the GST on property that comes with such transactions. Assetmonk is a WealthTech platform that offers real estate investment options in major cities like Bangalore, Chennai, and Hyderabad, with IRR ranging from 14 to 21%.

Calculate GST on Real Estate Property FAQ'S

To put it another way, the person who makes the “taxable supply” (the vendor) is the one who is responsible for paying the GST. When the seller’s contract with the purchaser requires the purchaser to pay or reimburse the seller for the GST the seller is required to pay, the purchaser pays the GST.

The GST Council reduced the tax rates on residential properties to 5% from 12 percent in March 2019, and the tax rate on affordable housing to 1% from 8%.

The new GST rate for flats worth more than Rs 45 lakh, effective April 1, 2019, is 5%, down from the present rate of 12 percent. The GST Council has decreased the rate of GST on affordable housing to 1% from the present rate of 8%. The builders will not be able to claim an input tax credit in the new structure in any event. The GST Council used two definitions for “affordable housing,” one based on carpet area and the other on cost.

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