GST on REAL ESTATE
Home buyers in India have to pay a Goods and Services Tax (GST) on the purchase of under-construction properties like flats, apartments and bungalows, at the rate of 1% for affordable housing and 5% for non-affordable housing. In real estate, the GST is also applicable on purchase of developable plots.
GST fact check: Did you know?
- 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 have to pay these duties while buying a property.
- GST is applicable on the services that banks offer, as part of the home loan, including processing fee, legal fee, 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.
GST on flat purchase
Those buying flats and apartment in under-construction projects in India are liable to pay GST on flat purchase in 2022. Note that GST on flat purchase is not applicable if you buy a property in an already completed projects. Legally, a completed project is that which has received a completion certificate from a competent authority.
GST rate on flat purchase 2022
| Property type | GST rate till March 2019 | GST rate from April 2019 |
| Affordable housing* | 8% with ITC | 1% without ITC |
| Non-affordable housing | 12% with ITC | 5% without ITC |
Taxes before GST implementation
Before a single tax in the form of the GST was introduced in 2017, a variety of state and central taxes were imposed on buildings, through the various stages a housing project’s construction cycle. While these taxes increased the cost of project development for developers, no credit against this tax was available to the builders against the output liability. Some of the taxes that real estate developers had to pay before the GST came into force included:
Value Added Tax (VAT)
Central Excise
Entry Tax
LBT
Octroi
Service Tax, etc.
The cost incurred on these taxes by builders was, then, transferred to the property buyer.
After GST implementation
Launched in India on July 1, 2017, the GST was touted to be the biggest tax reform in India after Independence. The GST subsumed multiple indirect taxes, to offer a uniform regime to the taxpayers. Since its launch, various changes have been made with regard to the bracket under which real estate is taxed under the GST regime.
Types of central and state taxes that GST subsumed
Listed below are the types of central and state taxes that the GST subsumed when it became operational in July 2017:
Central taxes
- Excise Duty
- Customs Duty
- Special Additional Duty of Customs
- Service Tax
- Central Sales Tax
- Central surcharge and cess on supply of goods and services
State taxes
- State Value Added Tax
- Entertainment Tax
- Luxury Tax
- State Excise Duty
- State surcharge and cess on supply of goods and services
- Taxes on advertisement
- Purchase tax
- Taxes on lotteries, gambling and betting
GST calculation on affordable property
Here’s a look at how to calculate GST on flats’ purchase in the affordable housing segment, before and after the change in rate in April 1, 2019:
| Affordable housing | GST on affordable housing before April 1, 2019 | GST on affordable housing after April 1, 2019 |
| Property cost per sq ft | Rs 3,500 | Rs 3,500 |
| GST rate on flat purchase | 8% | 1% |
| GST | Rs 280 | Rs 35 |
| ITC benefit for material cost of Rs 1,500 at 18% | Rs 270 | Not applicable |
| Total | Rs 3,510 | Rs 3,553 |
Impact of GST on luxury property
| Under-construction home bought under the PMAY Credit-Linked Subsidy Scheme (CLSS) | 8% |
| Under-construction home bought without the subsidy | 12% |
| Works contract for affordable housing | 12% |
Under the new GST rates, buyers of luxury properties will save more than they would have earlier. Here’s a look at how to calculate GST on flat purchase in the luxury segment:
| 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 | Rs 840 | Rs 350 |
| ITC benefit for material cost of Rs 13,000 at an average of 15% | Rs 126 | Not applicable |
| Total | Rs 7,714 | Rs 7,350 |
GST on government housing schemes
The government has clarified that government-led mega housing projects meant for the common man, will attract only 1% GST under the new regime. These housing schemes include as the Jawaharlal Nehru National Urban Renewal Mission, the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana and housing schemes of state governments.
GST on construction services
While real estate in India does not directly fall under the purview of the GST regime, various activities and services in the sector are taxable under the new regime. Following are the rates at which associated activities in the construction sector are taxed, under the GST regime in India:
GST on maintenance charges for housing societies
Flat owners are liable to pay 18% GST on residential property, if they pay at least Rs 7,500 as maintenance charge to their housing society. Housing societies or residents’ welfare associations (RWAs) that collect Rs 7,500 per month per flat, also have to pay 18% tax on the entire amount. Housing societies which have an annual turnover of less than Rs 20 lakhs are, however, exempted from paying the GST. For the GST to be applicable, both the conditions should apply – i.e., each member should pay more than Rs 7,500 per month as maintenance charge and the annual turnover of the RWA should be higher than Rs 20 lakhs.
The government has also clarified that the entire amount is taxable, in case the charges exceed Rs 7,500 per month per member. For example, if the maintenance charges are Rs 9,000 per month per member, the 18% GST on flats will be payable on the entire amount of Rs 9,000 and not on Rs 1,500 (Rs 9,000-Rs 7,500). Also, owners with multiple flats in the same housing society will be taxed for each unit separately.
On the other hand, RWAs are entitled to claim ITC on tax paid by them on capital goods (generators, water pumps, lawn furniture, etc.), goods (taps, pipes, other sanitary/hardware fittings, etc.) and input services such as repair and maintenance services.
GST rent
When is the tenant liable to pay GST
GST-registered tenants, who lease a residential unit will have to pay 18% tax on the rent amount. An amendment in this regard was announced by the GST Council on July 13, 2022. The new provision applies to individual service providers earning more than Rs 20 lakh in a year and businesses generating an income over Rs 40 lakh annually — in both the instances, GST registration becomes mandatory for the individual/business.
When the landlord is liable to pay GST
The GST regime treats renting of residential property for business purposes as supply of services. An 18% GST rent on residential flats is charged from the landlord on such rental income under this regime, if the rent amount per year exceeds Rs 20 lakh. In this case, landlords have to register themselves, to pay the GST on their rental income. On letting-out of commercial properties, a GST at 18% is levied.
GST on home loan
While there is no applicability of the GST on home loan repayment as far as the borrower is concerned, financial institutions offer several ‘services’ as part of home loans. Based on the fact that these are services, the applicability of GST comes into picture. Consequently, if you are taking a housing loan, the bank would charge GST on the processing fee, technical valuation fee and legal fee.
Must-know facts about GST
GST is not applicable on ready-to-move-in flats; it is applicable on under-construction flats only
The GST would apply on the sale of under-construction properties that have yet to receive the OCs. It also begs mention here that in the previous regime, buyers also had to pay service tax on the purchase of ready-to-move homes.There is no GST applicability on ready homes.
GST is not applicable on land transactions
Sale of land is also outside the purview of the GST on construction services, as the sale does not involve the transfer of any goods or services. As the cost of land is a crucial factor that determines property prices, GST provides a standard abatement of 33% of the total contract value, towards value of land for taxable real estate transactions.
Example: How to calculate GST on under-construction flat
Suppose that an under-construction property worth Rs 100 is sold by a builder to a buyer. To calculate the GST on building, Rs 33 will be counted out as the land value and the GST on construction would apply only on the remaining Rs 77.
Rate of GST on developable land
No GST will be applicable if your are investing in developable plots. This has been established by a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on August 3, 2022, which said plot sale does not attract GST even if some basic infrastructure has been developed. The the Karnataka AAR has also recently passed an order on similar lines.
earlier, some state authorities has taken a contrarian view. In July 2022, for instance, the Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) said that land sold after doing development activity will attract 18% Goods and Services Tax (GST). A similar verdict was passed by the Gujarat Authority of Advance Ruling in 2021.
Before the GST regime, sale of immovable properties was excluded from the purview of the value-added tax and thus, only direct taxes like stamp duty and registration charges were paid during such transactions.
What is developable land?
Only those plots, where the owner has obtained all the necessary permissions from local and municipal authorities to carry out future development over the land parcel, qualify as developable plots. To facilitate the future development, the owner also has to develop the basic infrastructure. If any or all of these activities have been performed on the land parcel, it would qualify as developable land:
- Demarcation of plot
- Ground leveling
- Boundary wall construction
- Road construction
- Construction of overhead tanks
- Laying work of water pipelines
- Laying work of underground sewerage lines
- Setting up of water harvesting facility
- Setting up of sewage treatments plants
- Development of landscaped gardens
- Setting up of a drainage system
GST on plot
While the sale of plots is also outside the purview of the GST regime, any small construction on the plot would attract GST. In case of the sale of such a plot, one-third of the value of the plot will be excluded and GST will be levied on the remaining two-third value of the land.
GST on sale of developable plots
While there are no GST implications on the sale of plots, the same is not true if the land parcel for which the transaction is recorded qualifies as developable land.
Before the Gujarat Authority for Advance Rulings (AAR) in a ruling specified that the sale of developed plot was a ‘service’ and thus, taxable under the current regime, the general understanding was that the sale of developable land was out of the purview of the GST. This is because a listing in Schedule-III of the CGST Act establishes that the sale of land and the sale of buildings will be treated neither as supply of goods nor as supply of services.
GST impact on stamp duty and registration charges
Despite the demands made from time to time, ever since the GST regime into force, to discontinue stamp duty and registration charges on property, the government has made no move on this front. Hence, property transactions in India continue to attract stamp duty and registration charges. While states levy stamp duty in the range of 5%-10%, the registration charge is either 1% of the property value or a standard fee.
GST on flat registration
There is no GST on the registration charges that are paid while registering a property. But, can we except GST to subsume stamp duty and registration charges in future? Experts do not think so.
“A large part of the revenue earned by states in India, is through stamp duty on property deals. If states were to let go of this income, the exchequer would suffer much higher losses than it already does. This fact leads us to believe the possibility of the GST subsuming the two charges are nil, at least in the foreseeable future,” says a Lucknow-based lawyer.