GST, or Goods and Services Tax, came into force on 1st July 2017 with the One Hundred and First Amendments of the Constitution of India. With the introduction of GST, all other taxes, including VAT, excise, and service taxes levied by the government, were discarded. The Indian Government implemented this regime to streamline the taxation system for the sale of various goods and services in the nation.
GST holds a noteworthy influence on the real estate sector. In the property purchasing sector, GST applies to only under-construction properties. Projects that have received completion certificates need not charge GST from homebuyers.
In this blog, we will unravel the dynamics of GST on home purchases.
Taxes before GST
Before GST, the Indian real estate sector had a complex tax structure. Homebuyers had to deal with indirect taxes, such as VAT, service tax, and excise duty. The numerous layers of taxes led to an increase in property pricing, which, in turn, affected the affordability of real estate for homebuyers.
1. VAT [Value Added Tax]: Before GST came into the picture, VAT was a significant component of the tax structure. This applied to the sale of various construction materials. As a result, this charge was carried forward to the homebuyer, leading to the property purchase hike.
2. Service Tax: This tax was another indirect tax applicable to the services offered by builders and developers. It covered the various construction and development services, including design, planning, and construction. The builder endured this tax but indirectly affected homebuyers, as the increased construction cost was often carried forward to them.
3. Excise Duty: Excise duty was enforced on construction materials like steel, cement, and other building materials. This duty added to the manufacturing cost of these materials, which contributed to the overall cost of property development.
4. Octroi and Entry Tax: In addition to VAT, service tax, and excise duty, various states imposed octroi and entry taxes, essentially local taxes levied on the movement of goods and materials within a particular jurisdiction.
Taxes Before GST on Under-Construction Properties
|VAT||1 – 4%|
|Registration Charges||0.5 – 1%|
|Stamp Duty Charges*||5 – 7%|
GST Rates on Flat Purchase
With the effect of GST, the real estate sector witnessed a notable change. GST introduced a simple tax structure, replacing the various taxes with a single tax enforcement system. For homebuyers, the GST rate on flat purchases varies depending on the property type—under construction or ready to move in. Ready properties are exempt from GST, while GST on under-construction property is calculated at the stage of construction and may vary.
|Type of Property||GST Charges|
|Affordable Housing||1% without ITC [Input Tax Credit]|
|Luxury Apartments||5% without ITC [Input Tax Credit]|
Conditional GST Charges on Flat Purchase
In the case of under-construction properties, the GST charge is 5%. However, it is crucial to note that this rate may vary on the basis of the construction stage, making it essential for homebuyers to understand the applicable rates at the time of property purchase.
GST on Housing Society Maintenance Fees
The GST implications extend to the post-purchase stage. Homebuyers must also be aware that housing society maintenance fees are subject to GST, impacting the monthly expenses.
GST for Affordable & Luxury Housing
The GST rates differ for affordable and luxury housing. Affordable housing is subject to a reduced GST rate of 1%, while luxury properties may have a higher GST rate. Understanding these variations is vital for potential buyers to make informed decisions.
To sum up, implementing GST in the real estate sector has simplified the taxation system in the real estate industry, replacing various other taxes. This has made the purchase of properties more transparent and less taxing for homebuyers. However, homebuyers must be well-informed about GST and its implications when investing in real estate. Purchasing a flat is a crucial decision, and having a comprehensive understanding of GST is a crucial aspect of the process.
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