GST on Flat Purchase- A Comprehensive Guide for Buyers

commitment and a turning point for many. For most people, purchasing a home is one of their most costly ventures and there may be long-term and substantial financial repercussions. When applying for financial aid, one must take into account several costs, including insurance, maintenance, taxes, and loan interest payments. Speaking of taxes, there are a number of them that must be paid when buying a house, including property tax, GST, mortgage tax, transfer tax, and others. Let's examine what GST is and what it means when buying a flat for residential purposes. 

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Table of Contents:

GST on Property in India

GST on Flat Purchase in 2024

Input Tax Credit (ITC) for GST

GST on Luxury Real Estate 

Conditions Affecting GST on Affordable Residential Real Estate

Calculation of GST on Flat Purchase

Impact of GST Rates on Flat Buyers

Benefits of GST for Residential Real Estate

GST on Housing Society Maintenance Fees

GST on Developable Land

Conclusion

Most Asked Questions

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GST on Property in India

In 2017, the Indian government enacted the Goods and Services Tax to harmonise global taxation frameworks. Before the Goods and Services Tax (GST), developers and buyers of real estate had to pay multiple taxes, including value-added, service, and central excise, which put additional strain on buyers. The properties' taxes were less transparent and structurally complex. When it came to premium residential buildings, the GST on property acquisition was initially 12% for non-affordable housing and 8% for affordable housing. 

Buyers of real estate could claim the input tax credit, or ITC, on the GST rates that were in effect at the time. The revised GST rates went into effect on April 1, 2019, following the 33rd meeting of the GST Council. Affordable housing units are now subject to a 1% GST rate, while non-affordable or luxury housing units without an input tax credit are subject to a 5% GST rate.

GST on Flat Purchase in 2024

The following table illustrates the values of GST on flat purchases in 2024:

In 2024, GST would have to be paid by buyers of flats and apartments in under-construction projects in India's megacities. Keep in mind that purchasing an apartment in a completed complex is exempt from the GST. The relevant authorities have issued a certificate of completion for a completed project. Keep in mind that all new projects will be subject to the increased tax rate minus the input tax credit (ITC). For ongoing projects, builders must select between the old and new rates by May 20, 2019. As of March 31, 2019, this discount was only available for unfinished projects.

Input Tax Credit (ITC) for GST 

One of the unique aspects of the GST law is the ITC system, which sets it apart from India's previous tax structure. During the course of a housing project, a real estate developer must pay different taxes on the purchases of goods and services. Under the GST system, the builder would get an input tax credit after he paid his output tax. For example, a developer who has a finished product worth Rs 50,000 has to pay tax on it. The builder has already paid Rs. 45,000 in input tax when purchasing goods such as steel, cement, paint, etc. In this scenario, he would only have to pay Rs 5,000 in output tax after accounting for the input tax credit.

GST on Luxury Real Estate

High-end real estate is defined as opulent properties with first-rate facilities, infrastructure, and amenities. The luxury property industry in India has had a significant upsurge in the past few years. However, the introduction of the Goods and Services Tax (GST) has altered the tax system significantly and affected the market for luxury real estate.

GST on Under-Construction Flats: 

Luxury property purchasers are concerned about the GST on flat purchases made while the building is still under construction. Under the GST, under-construction properties are subject to a 5% tax rate. The tax rate, however, could change based on the project's type and the state. The developer can receive the input tax credit (ITC), but they are not required to transfer this benefit to the customer. It is the buyer's responsibility to make sure the developer grants them ITC. 

GSTon New Flats: 

The ultimate cost of a new apartment may differ depending on whether or not the developer chooses to pass on the ITC benefit to the buyer. GST for new apartments is 5%. The developer is eligible to receive the ITC advantage when they buy the supplies and labour needed to build the property. It is not required, though, for the developer to give the buyer the ITC benefit. 

GST on Purchase of Flat: 

GST is 5% applicable to homes that are still under construction, and the developer may or may not provide the buyer the benefit of the ITC. GST does not apply to properties that are ready to move into because they are regarded as completed.

GST on Ready-to-Move Flats:

Since ready-to-move-in apartments are regarded as completed properties, there is no GST on them. On the other hand, if the buyer purchases an apartment with unfinished interior work, it will be deemed an under-construction property, and 5% GST will be charged. 

Conditions Affecting GST on Affordable Residential Real Estate

• Regarding metropolitan areas like Mumbai, if the under-construction house's area is 60 square metres, the property falls under the affordable housing category and the price is up to 45 Lakh.

• In non-metro cities, real estate is included in affordable housing if the under-construction house's area is 90 square metres and its cost is up to 45 Lakh. 

• At least 80 percent of the raw materials must be bought from a registered dealer for flats to qualify for the 1% GST rate. If not, RCM requires the developer to pay 18% GST. 

The ITC is not included in the one percent GST that affordable homes under development must pay. As a result, you are unable to deduct the GST you paid while purchasing the property from your income. As such, you will not benefit from a lower annual income tax rate on your income.

Calculation of GST on Flat Purchase

The following example explains the process of calculation of GST on affordable flat purchases before and after the 2019 rate change in India:

If you have all the necessary information, it should be quite simple to compute the rate of GST on the acquisition of a residential apartment. There are several online resources that can assist with GST calculation on a flat purchase if you have any additional questions.

Impact of GST Rates on Flat Buyers

GST rates on flat purchases, residential property taxes, and house purchases can affect your decision to buy a home. To help you grasp how GST could affect you as a property buyer, we'll break it down into concise points:

• The GST rates on flat purchases may have an impact on your spending plan. You must account for GST charges if you're purchasing a brand-new flat or one that is still under construction. GST, however, won't be an issue if you're purchasing a ready-to-move-in flat.

• For residential properties, the GST is 1% for properties that are inexpensive and 5% for luxurious properties. This may have an impact on your ability to afford a property. 

• Keep in mind that if you purchase land, there is no GST on a flat. This may increase the appeal of purchasing land and constructing your own house. 

• The GST on real estate acquisitions may raise the cost of your residence. However, you may be able to recoup some of this through the Input Tax Credit (ITC) if you have the proper documentation.

• The GST rates are subject to constant revision. When purchasing a home, it's wise to research the most recent rates and consult a specialist. This will assist you in comprehending how the existing GST on residential property rates may affect your choice.

Benefits of GST for Residential Real Estate

• Low Cost of Construction: The GST on the purchase of an apartment will drive down the price of steel, cement, and other building supplies, bringing down the cost of construction significantly. Cheaper real estate values will arise from this, eventually benefiting middle-class society. 

• ITC (Integrated Taxation System): In the real estate industry, having a single tax base is generally essential. At the moment, taxes are levied even on the raw materials that developers and builders buy. By combining all taxes, the GST on flat purchases resolves these problems.

• Neutral Income Rate: Rules about service taxes and VAT have no bearing on the fiscal operations of the real estate industry. When a flat buy GST rate is used, the neutral income rate (RNR), which is determined by central tax authorities and state goods and services taxes (SGST) on goods and services, can help lessen this kind of difficulties and maintain the transaction system, i.e. (CGST). 

GST on Housing Society Maintenance Fees

A flat owner is liable to pay 18% GST on residential property if they pay their housing society at least Rs 7,500 in maintenance costs. If housing societies or residents' welfare associations (RWAs) collect Rs 7,500 per unit every month, they also have to pay an additional 18% tax on the total amount received. However, if a housing society's annual turnover is less than Rs 20 lakhs, they are not required to pay the GST. For the GST to be implemented, the RWA's yearly revenue must surpass Rs 20 lakhs and each member must pay maintenance costs exceeding Rs 7,500 per month. 

Furthermore, the government has stated clearly that if each member's monthly costs are more than Rs 7,500, the full amount is subject to tax. For example, if the maintenance costs are Rs 9,000 per month per member (Rs 9,000-Rs 7,500), the 18% GST on flats is payable on the entire value of Rs 9,000 and not on Rs 1,500. In addition, taxation will be paid separately by owners of many apartments in the same housing society.

GST on Developable Land

Purchasers of developable plots will not be required to pay GST. This was established by the August 3, 2022, Central Board of Indirect Taxes and Customs (CBIC) circular, which said that plot sales are excluded from GST even if some basic infrastructure has been developed. The Karnataka AAR recently passed a similar ruling as well. In the past, certain state officials took a different stance. For instance, the Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) decided in July 2022 that an 18% Goods and Services Tax (GST) would apply to land sold following development activity. In 2021, the Gujarat Authority of Advance Ruling made a ruling that was comparable.

Sales of immovable properties were exempt from value-added tax before the GST system's adoption, meaning that only direct taxes—like stamp duty and registration fees—were due. Stamp duty and real estate registration are two examples of state government fees that have persisted after the GST on flat acquisitions was implemented. These expenses vary from one state to the next and even within the same state between circles. While GST on a new flat purchase would only apply to under-construction buildings that are sold, stamp duty and registration fees will still apply in the GST era to both already-built and under-construction properties across India.

Conclusion

One of the biggest changes to the real estate industry has been the GST. Homeowners are burdened and their tax procedures are hampered by the developer's payment of customs duty, VAT, excise duty, legal costs, service taxes, and permission fees, among other things. Property tax was made simpler by the GST. The real estate tax rate was raised to 12% by the new GST regime, which also lessened the burden on property purchases. 

FAQ

Q1. Who has to pay the GST on flat purchases?

When buying or investing in under-construction properties, the buyer or investor is required to pay GST on completed flats or GST on newly built residential units.

Q2. Is real estate subject to GST?

GST is applicable to the real estate industry. GST is applied to residential real estate purchases. The real estate GST rate applies to properties even if they are still under construction and do not yet have an occupancy certificate. There is an additional GST fee for flat registration.

Q3. Is GST on property purchase applicable on ready-to-move flats?

There are no services involved in the handover of a completed home to a buyer. As a result, GST will not be applied to the purchase of an apartment in these deals. Therefore, if you buy a ready-to-move-in property, you might be able to avoid paying GST on flat purchases.

Q4. What is the GST rate on flat purchases in 2023?

Effective April 1, 2019, purchases of luxury residential properties will be subject to a 5% GST without ITC, while purchases of other affordable properties will be subject to a 1% GST. 

Q5. How can I avoid GST while purchasing a flat?

GST is not due at the time of purchase for ready-to-move flats. The landlord is exempt from GST if the tenant is not a commercial entity. GST on house registration: When you purchase a home, you still need to pay GST as stamp duty and registration fees are not covered by GST.

Q6. What is GST on flats below Rs. 45 lakhs?

The 33rd Amendment to the GST Council lowered the under-construction property tax from 12% to 5%. A lower tax rate of 1% is now in effect for reasonably priced properties up to Rs. 45 lakhs. Nevertheless, properties that are not eligible for the Input Tax Credit (ITC) can benefit from this tax relief.

Q7. What is GST on flats in Mumbai?

Currently, the GST rate for real estate is 5% without Input Tax Credit (ITC) for residential properties and 1% for affordable housing projects. 

Q8. How do I claim a GST refund on an apartment?

Only flats that are still under construction qualify for GST claims. To apply for a refund, submit an application to the GST authorities together with the property builder's GSTIN and the total amount of GST paid.

Q9. Is it mandatory to pay GST on a residential property?

Yes, purchasing a residential property requires paying GST, however, this only applies to newly- constructed and under-construction properties—not to resale or move-in ready apartments.