GST on real estate has significantly impacted the sector since its initiation in 2017, completely transforming India’s taxation system. The real estate sector is one of those most affected, making it essential to understand the complexities of GST for properties while buying a house or investing in your dream property.
Table of Contents
In this post, we’ll talk about the impact of GST on real estate. It focuses mainly on residential and under-construction properties. Several critical concepts, such as GST rates and differences in GST between commercial and residential property, are also in the scope of this blog. Let us get started!
What is GST on Real Estate Sector?
GST is an indirect tax that is levied on the supply of goods and services. GST is applicable only to the extent of sales and purchases of property, especially as it relates to under-construction property in the real estate sector. It excludes the sales of properties already completed or of land. This difference is essential for buyers and investors because it changes the overall cost of property transactions.
GST Rates on Real Estate in India
| Particulars | GST Rate |
|---|---|
| Ready-to-Move Properties | No GST |
| Under Construction Properties (houses bought under credit linked subsidy scheme) | 8% |
| Under Construction Properties (excluding the other) | 12% |
| Resale Properties | No GST |
| Land Purchase and Sale | No GST |
| Works Contract | 18% |
| Composite Supply of Works | 18% |
| Composite Supply of Works to Govt Authority | 12% |
| Composite Supply of Works for the General Public | 12% |
| Composite Supply of Works Contract for Affordable Housing | 12% |
A Complete Overview of GST on Real Estate Sector
The Goods and Services Tax (GST) has made the taxation in the real estate sector comparatively easy to understand. It impacted under-construction properties, affordable housing, and rental income. Understanding its implications is essential for real estate players investing in properties.
1. GST for Under Construction Properties
GST for properties has changed the way the tax system works in real estate. There previously existed several more taxes, like VAT, service tax, and stamp duty, which were subsumed under GST, making a single tax with greater clarity but increasing the GST for under construction property in many cases.
As per current policies, the GST for property intended for residential use and GST for under construction property is now at 12%, with an effective rate of 1% for affordable housing. The rate includes the costs of land or an undivided share of land, as long as the costs are at least one-third of the total amount charged by the developer.
The GST rate remains unchanged whether the property is for commercial or residential use, however, tax implications can vary depending on the purpose of the property.
2. GST on Completed Properties and the Land
There is no applicability of GST on completed property or land. GST rate on residential property is also not applicable. You only need to pay registration charges and stamp duty, which may differ from state to state. This exemption decreases the overall tax burden on buyers. Now that you know this, keep it in mind before buying a property; confirm if it’s completed or under construction. This will determine whether GST is applicable or not.
3. Impact of GST on Property Prices
The market exhibited a mixed reaction once GST settled and became functional. The input tax credit (ITC) provision enables developers to claim credits for taxes paid on construction materials and services. This reduces construction costs. At the same time, it has also increased the initial cash outlay for buyers since GST rates on under-construction properties are also increased.
For example, the GST rate on residential property that is under construction would be 12 %, and someone buying an under-construction residential property might feel this claim bite deep into the overall cost. Buying an affordable housing unit is easier; however, the effective GST rate of 1% has made it more accessible for middle-income buyers.
4. Carpet Area vs Built-Up Area: How GST Affects You
Carpet area is what you can use inside the walls of a property. However, the built-up area means carpet area plus thickness of walls, spaces like balconies, terraces, etc.
The built-up area is usually taken for charging GST. This means that GST is collected on some areas that the buyer would never even get to use. So, whatever the price quoted for a property, always confirm if it is carpet or built-up. This will have a GST effect.
Also Read:- Difference Between Carpet Area and Built-Up Area
5. GST on Residential Property vs GST on Commercial Property
The GST on commercial and GST on residential property under construction is the same; however, tax implications will differ based on the intended use. Buyers acquire commercial property to use the property for business purposes, allowing them to claim input tax credit with respect to GST paid thereon. Residential properties, on the other hand, are generally purchased for personal use, making it harder for them to claim such credits.
GST on Real Estate at a Glance
Under-Construction Properties
- Residential Properties: 5% GST (No ITC)
- Commercial Properties: 12% GST (No ITC)
Ready-to-Move-in Properties
- No GST but stamp duty and registration fees apply.
Affordable Housing
- 1% GST for properties priced ≤ ₹45 lakh (No ITC)
- For a ₹40 lakh property, GST = ₹40,00,000 × 1% = ₹40,000.
Works Contracts
- 18% GST on construction/renovation services
- Example: For a ₹7 lakh contract, GST = ₹7,00,000 × 18% = ₹1,26,000
Commercial Leasing
- 18% GST on rent (if annual rent > ₹20 lakh)
- Example: Monthly rent of ₹1,50,000, GST = ₹1,50,000 × 18% = ₹27,000
Residential Properties in Gurugram
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Conclusion
The GST has changed the way properties are bought and sold in India.
GST makes tax management straightforward by eliminating all the dreaded taxes. But one really needs to look into the fine print of GST before venturing into an attempt to acquire any type of property in India, whether it is residential or otherwise commercial, ready-to-occupy or under-construction, including projects by Ganga Realty, one of the best real estate company in Gurgaon.
Frequently Asked Questions
How does the Union Budget 2025 impact affordable housing?
The Union Budget 2025 offers tax relief for developers, reduction in GST, and construction materials. The Government’s initiave PMAY improves affordable housing by increasing funding. This initiative will make affordable housing more accessible to low and middle-class group.
Will there be tax benefits for homebuyers under the Union Budget 2025?
Yes, the budget introduces higher deductions on home loan interest rates and additional tax benefits for first-time buyers, encouraging homeownership and reducing the financial burden on buyers.
How will the Union Budget 2025 support real estate developers?
The budget offers easier access to credit, reduced corporate taxes for affordable housing projects, and easy approval processes, enabling developers to accelerate project completion and reduce costs.
Are there any initiatives for urban planning and smart cities?
The Union Budget 2025 has something for everybody. This budget has allocated significant funds for smart city projects. This move is to focus on sustainable infrastructure, digital connectivity, and efficient urban planning.
How will the Union Budget 2025 impact property prices?
Increased infrastructure spending and affordable housing incentives may stabilise property prices in the short term, while long-term demand growth could lead to moderate appreciation in key markets.
How will the budget affect commercial real estate?
The Income Budget 2025 will provide the commercial real estate sector a boost through incentives for REITs, infrastructure development, and tax benefits for office spaces, boosting demand for retail, office, and industrial properties.
