According to real estate rules, this article reflects the crucial facts regarding GST on a flat purchase. Let’s learn more.
In 2017, the government launched the Goods and Service Tax to standardise with the global taxation system. Before GST, the property developer and buyers had to pay the value-added tax, service tax, central excise, etc.
The property buyers were, directly and indirectly, getting more burdened by it. Also, there was less transparency in the taxation of properties due to the complicated taxation system.
Initially, the GST was 8% for purchasing affordable house property, and for non-affordable housing or premium residential projects, it was 12%.
Also, the property buyers could avail the benefits of the ITC on the earlier applicable rates of GST on flat purchase. In the 33rd GST council meeting, the rates of the GST were revised, and from April 1 2019, the new GST rates were applied.
According to the new GST rates, it was a 1% GST on flat purchase in the affordable housing segment, whereas it was 5% for the non-affordable or premium housing units without ITC.
8 Things to Know About GST on Flat Purchase
Taxes Before the Implementation of GST on Flat Purchase
Before the introduction of GST as a single tax form in 2017, the government imposed different types of state and central taxes on buildings in a housing project’s construction cycle throughout its various stages.
Although these taxes were used to raise the project development cost for the builders, the builders were not eligible to claim a credit against this tax for output liability. Some names of the taxes that were levied on the real estate builders before the GST on flat purchase included:
- Value Added Tax (VAT)
- Central Excise
- Entry Tax
- Service Tax, etc
The cost incurred on these taxes by developers was then transferred to the buyer of the property.
Also, the complexity of numerous taxes and their applicability rate made it possible for the builders to charge more from the buyers by manipulating the numbers.
It used to be a hectic and complicated task for the common buyers to find out about the VAT, Central Excise, Entry Tax, LBT, Octroi and Service Tax rate applicable to the construction of the property.
Impact of GST on the Housing Sector
The GST has been one of the ideological reforms of the real estate industry. The developer used to pay taxes in various segments such as VAT, Customs Duty, Excise Duty, service taxes, legal fees, approval fees, etc. The previous tax regime complicated the process of taxation on the builders and added a burden on the homebuyers.
Thus, the property tax was streamlined under the newly introduced GST regime. However, according to the new GST regime, the tax rate of the real estate sector was higher at a 12% slab.
The new GST rates were introduced in the 34th council meeting held in 2019. The GST rates were significantly reduced after this.
The new GST rate for premium residential projects was 5%, whereas it was reduced to 1% for affordable housing projects.
What are Some Positive Effects of GST on Real Estate?
Low cost of construction: The construction expenses will reduce exponentially if GST on the purchase of a flat will lower the rate of things like cement, steel, and other building materials. Ultimately, this will aid the middle-class society, resulting in affordable real estate prices.
ITC (Integrated Taxation System): It is critical for the real estate market to have a unified tax base. The builders and developers must pay taxes on the raw materials they buy, and these issues are solved by imposing GST on flat purchases, which unifies all taxes.
How Does an Input Tax Credit (ITC) Associate With GST?
The ITC system is a unique feature of the GST law, which differentiates it from India’s previous taxation system, which states that starting from the beginning of a housing project till its completion. Multiple taxes had to be paid at the time of purchase of goods and services by the real estate developer. The builder will get an input tax credit when he pays his output tax under the GST regime.
What Do Property Registration and Stamp Duty Suggest?
As soon as the GST on flat purchase is applied, real estate registration and stamp duty get attested by the state government.
However, the costs applied to these properties vary in each state. These charges will continue to apply to both buildings, whether under construction or already constructed, all over India.
It has an exception that GST would get applied to only those already sold and under construction flats.
What Is Affordable Housing If We Add in the GST Factor?
According to the government’s propounded definition, houses with a cost of up to 45 lakhs can come under the umbrella of affordable housing and measure up to 60 sq. m of area (carpet area).
Several cities are metropolitan; some of them are: Bengaluru, Chennai, Hyderabad, the Mumbai Metropolitan Region, and Kolkata are among the cities which fall into these brackets.
It does have an exception that, excluding the cities mentioned above, if someone owns a house or a flat that costs 45 lakhs, it can come under affordable housing, including 90 square meters of carpet area.
Rate of GST on Land That Can Get Developed in Future
There will be no GST on flat purchase if you have invested in those plots that can get developed. It was put forth by the central board of indirect taxes(CBIC) on August 3, 2022, that plot sales would not attract any GST even if some infrastructure had been developed over them.
Before this, some state authorities were at a crossroads with the propounded law. In July 2022, the Madhya Pradesh authority on the advanced ruling (AAAR) proposed that if the land is sold after being used for development activity, the GST rate of 18 per cent will apply; not only that, but the Gujarat authority on the advanced ruling was also on the same page.
Before the GST regime, there was an exception concerning immovable properties from the point of view of value-added tax. So only direct taxes such as stamp duty and registration charges were being paid during the transactions.
How Much GST Applies to the One-Time Maintenance Deposit Collected by Builders?
Concerning the Gujarat bench of the authority of advanced ruling, the GST applies to one-time maintenance that the builder collects from the buyers. They have also said that this fee falls into the service category and is not refunded.
A requirement is also attached: GST will be deducted from the maintenance amount while this money is spent on maintenance works.
A point to consider here is that several real estate developments gather up the one-time maintenance deposit from home buyers before establishing resident welfare associations or cooperative housing societies that accommodate the obligation of keeping maintenance from the builder.
Concurrent with the formation of RWA and CSA, they become the sole authorities responsible for the maintenance work and can propose their mix of morale regarding calculating maintenance charges. The builder does not have the authority to be in the crosshairs with them.
The basis on which the sole liability of home buyers gets calculated is based on how large the property is—the buyers have to pay a fixed per sq. ft. rate. The amount collected from the home buyers as a maintenance charge can be used as and when required for the intended purpose.
The housing sector expects an incentive from the government as about the housing sector the GST on flat purchase will reduce in the proposed budget for the next session. The government has also decreased the affordable housing rate to 1 per cent, and the industry thinks that all unfinished construction projects will be taxed at the same rate without paying attention to ticket size.
What is the current rate of GST on flat purchase?
Cheap residential units will be subjected to a 1 per cent GST on property sales without ITC. On the other hand, other residential properties will be subjected to a 5 per cent GST excluding ITC.
What are the concessions under GST?
If you want to avail of the offer of 1 per cent or the 5 per cent GST rate, then the condition is that at least 80 per cent of the raw material is to be sourced from the registered dealer.
What are the current GST rates for land purchases?
Fortunately, no GST is being applied to land properties in India.
What are the types of GST?
Three types of GST are discussed below:
- SGST (the state goods and services tax)
- CGST (the Central Goods and Services Tax)
- IGST (Integrated Goods and Services Tax)
Who is eligible to pay GST on real estate properties?
It is done by the homebuyer or an investor while investing in properties being constructed.