GST, or Goods and Services Tax, has become a crucial part of the taxation landscape in India after its implementation in 2017. When it comes to buying properties, understanding the way GST applies is important. This is because the tax structure in India changed over the years. Staying informed about the GST system is vital to stay compliant.
This comprehensive guide will share the process of calculating GST on property purchases, discuss affordable housing, and explain GST rates. Without much delay, let’s quickly dive right in!
Where is the GST Applicable While Buying Property?
The Goods and Services Tax is applicable to several aspects of property transactions in India. Firstly, it is levied on the purchase of the under-construction properties. The rate of the GST for the under-construction property is determined by the type of the property- affordable or non-affordable.
Furthermore, the GST is also applicable to all the services that builders and developers use during the construction phase, like architectural services, legal fees, etc. However, the specific rates on both affordable and non-affordable housing are 1% without ITC for affordable housing and 5% without ITC for non-affordable housing.
The GST is not applicable to the sale of completely constructed properties where the completion certificate has already been issued. It is crucial to distinguish between ready-to-move properties and under-construction properties to understand when the GST applies.
What Exactly is Affordable Housing?
Affordable housing is a crucial concept when it comes to calculating GST on property purchases. The Indian government aims to promote affordable housing to ensure housing for every individual. However, in the context of GST, affordable housing refers to properties with certain criteria, such as a price cap per square meter and carpet area.
All these criteria vary depending on the location of the properties. However, the high-end properties do not belong to the category of affordable housing and fall under the non-affordable housing category. Therefore, the rate of the GST on non-affordable housing is higher than that of affordable housing.
As the affordable housing GST rate is lower, it makes them more accessible to several buyers. However, understanding whether the property qualifies as affordable housing is crucial for accurate GST calculation.
Understanding Real Estate Registration and Stamp Duty
Real estate registration and stamp duty are crucial components of property transactions in India and other countries. These processes involve taxation and legal documentation with the acquisition or transfer of real estate. It is the process of officially recording a property transaction with the government.
Real estate registration is the legal proof of the transfer of property rights and ownership. The stamp duty is the state-level tax imposed on several documents, including property sale deeds and sales.
The stamp duty is crucial to make all the documents enforceable, legally and validate. The amount of the stamp duty is a small percentage of the market value of the property, which varies from location to location.
How to Calculate the GST Properly on Property Purchase?
Knowing how to calculate the GST properly on the property purchase is important to stay compliant legally. Let’s know the process of calculating GST without any delay.
Determine Property Type: Check whether the property is affordable or non-affordable housing. This is because the GST rate is different for each housing, where the non-affordable housing GST rate is higher than the affordable housing.
Calculate Property Value: After determining the property type, it is time for property valuation. Start with calculating the value of the property, including all expenses like base price, parking charges, preferential location charges, and other costs.
GST Calculation: Now, calculate the GST rate to the total property value. The GST applies on each square foot of the purchased property. For instance, if the square foot is Rs.3500, then the affordable housing GST will be Rs.35, and the non-affordable housing GST will be Rs. 175.
Input Tax Credit or ITC: Homeowners can check whether their builder has factored in the ITC or Input Tax Credit benefits is crucial. It is because it can reduce the effective GST liability on them.
Additional Costs: Sometimes, people forget about calculating the extra charges on their property purchase that directly impact the GST calculation. But all the additional costs are crucial, including registration fees, stamp duty charges, and housing maintenance fees.
| Affordable Housing | Current GST Calculation Rates |
| Property Cost Per Square feet | Rs. 3500 |
| GST on Flat Purchase | 1% |
| GST | Rs. 35 |
| ITC Benefit for Material Cost of Rs. 1,500 at 18% | N/A |
| Total | Rs. 3553 |
GST on the Raw Materials on Property Purchase
The Goods and Services Tax is applicable to the raw materials used in the construction of properties as well. It is an integral part of the overall taxation structure in the real estate industry. However, the GST rate varies depending on the material type. The GST rates are divided into four slabs, including 5%, 12%, 18%, and 28%. The contractors and builders involved in the property construction must claim the ITC for the GST paid on the services and raw materials of the property.
However, the raw materials that are GST applicable are steel, cement, bricks, concrete, sand, electrical fitting, tiles, plumbing fixtures, paint, and many more. Every material may attract different GST rates. Additionally, suppliers of the raw materials must be registered under the GST system.
It is worth noting that the GST rate changes over time, making it necessary for people to learn about the recent GST structure at the time of the property purchase. Know the government policies and notifications to stay updated with the latest GST rate changes.
| Property Type | GST Rates Before March 2019 | GST Rates After March 2019 |
| Affordable Housing | 8% with ITC | 1% without ITC |
| Luxury Housing | 12% with ITC | 5% without ITC |
Conclusion
Calculating GST on the property purchase is a crucial step of the buying process. Understanding the applicability of GST, distinguishing between affordable and non-affordable housing, and considering the GST rate changes are the important steps. Awareness of extra charges and accurate calculation are the primary keys to budgeting effectively.
Also Read: GST Registration For Services: Documents Required
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Also you can read how to calculate GST on food products
