An Ultimate Guide to Understanding GST on Real Estate

The system of taxation in India was very complex. There were several state and central taxes, excise duties, CESS, VAT, and other types of taxes levied on different goods and services. Not only did this make it difficult to compute these, but it also made tax evasion rampant. To make the taxation system simpler, clearer, and easier for everyone, the Government of India launched the GST (Goods and Services Tax) system in July 2017. Like all other sectors of the economy, GST has also had a profound impact on the real estate sector. As a prospective homebuyer, here is all that you need to know about GST on real estate in 2023.

GST on Residential Projects

The GST council has defined a residential project as one where the commercial space does not exceed 15% of the total carpet area in the entire project. Therefore, the GST on commercial properties is 12%.

The GST rates on residential projects with effect from 1 April 2019 are as follows -

• GST on new affordable housing projects (under construction) - 1%
• GST on residential projects from the non-affordable category (under-construction) - 5%

So how do we know if a residential project belongs to the affordable category? An affordable housing apartment is one that satisfies the following conditions -

• The apartment unit costs INR 45 lakhs or less.
• Has a carpet area of up to 60 square meters (in metropolitan cities) and up to 90 square meters (in all other cities and towns)

The metropolitan cities in this context are the Delhi NCR, the Mumbai-Mumbai Metropolitan Region, Chennai, Hyderabad, Bengaluru, and Kolkata. It is important to remember that GST is not charged on completed projects or real estate properties that have received their completion certificates.

Banks and lenders may charge GST on the home loan processing fee and other charges when applying for a home loan. However, the purchase of residential plots does not involve any GST component. In some cases, under-construction projects may cost less despite the GST that completed residential flats. In addition, registration and stamp duty charges must be paid, irrespective of the GST component of your property purchase. These points must be considered when you decide to buy your dream home.

Input Tax Credit (ITC) is a system that helps goods manufacturers and service providers to avoid cascading taxes. So, all manufacturers or business owners can claim input credit on the tax they have paid for the items that they have used as input in the supply chain. However, according to the 2019 amendment, the end buyer cannot claim ITC on real estate.

GST on Maintenance Charges

Most gated communities and housing societies require homeowners to pay a fixed amount as maintenance charges. An 18% GST is levied on the Residents’ Welfare Association if each homeowner or unit owner pays INR 7500 or more per month towards maintenance and if the total turnover of the association is over INR 20 lakhs a year. The association can, however, claim ITC towards materials purchased in the course of maintaining the housing project.

Expert Guidance At Your Fingertips

We at Blox aim to make the homebuying process a seamless and joyful one. We appreciate that home buyers are required to make a number of decisions related to location, budget, amenities, projects, and developers. Apart from using cutting-edge technology to bring you RERA-registered properties from verified builders, we also offer the services of expert relationship managers who will handhold you through the home buying process. You can speak to your Blox relationship manager and your financial advisor about any GST-related queries on your real estate purchase.