GST for Real Estate in India with New ITC Rules

GST for real estate, is a complicated tax code for most people, but not anymore. In this article, I will share everything about the new GST law and how you can reduce your taxes using these.

GST for Real Estate Sector in India

I will share the recent updates on real estate GST applicable for the following lists. These are the main points on gst for real estate that an average man has to pay while buying a house or property.

After knowing about these, you will have a clear idea of how much money you have to pay in GST and how you can reduce your taxes using some techniques that I will share with you.

GST for Houses

All those houses are affordable, whose value is less than ₹45 lakhs, and those above ₹45L are considered non-affordable.

  • New Law: Pay 1% of the total house value as GST without ITC (Input Tax Credit), and in non-affordable housing, the GST rate is 5% with ITC. 
  • Old Law: Pay 8% with ITC in affordable housing and 12% with ITC in non-affordable housing.

That’s a great improvement for those who want a new home at an affordable price.

The Affordable housing selection may vary in every state as some say the carpet area of an affordable house is 60 sq. meters, and some say no, it’s 90 sq. meters.

Here is the list of what every state in India says about this affordable housing criteria. 

  • Delhi
  • Mumbai
  • Kolkata
  • Hyderabad
  • Chennai
  • Bengaluru

In these cities, the affordable house is under ₹45 lakhs and has a 60 sq. meters carpet area. In other Indian states, the law is ₹45 and 90 sq. meters.

What is ITC (Input Tax Credit)?

When a developer buys construction materials, Sand, Cement, Iron, and other things, he has to pay GST on that, and the percentage is as follows, applicable from September 2021:

  • Sand – 21%
  • Cement – 18%
  • Bricks – 12%
  • Steel – 18%
  • Paint – 18%
  • Tiles – 28%

A developer has to pay taxes on these items, and then he can develop the builds according to the new law.

  • ITC says if you have to pay GST on a house of ₹1 lakh, but you have already paid ₹90,000 on GST while purchasing those construction materials, then you have to pay only ₹10,000 as GST, not the full amount. 

This ITC law is applicable from April 2021.

GST on Residential Property Income

You don’t have to pay any GST on your rental income if the total amount does not cross ₹20 lakhs on residential properties. 

Fantastic isn’t it?. Because the rental property is the backbone of a person’s wealth. Have you heard this quote?

  • Cash flow is the king.

The Government is pushing rental homes with some concessions, which will encourage investors to develop more rental units. But, if the total rent crosses ₹20 lakhs, then what? 

Then, you have to pay 18% GST on that income. Hire an accountant, and reduce that amount below ₹20 lakhs to pay no taxes on that income.

GST on Home Loan

Do I have to pay any GST on home loans? No, not directly but indirectly. When you buy a house from the developer, he will add all the required taxes before he sets the final price, like:

  • Processing fees
  • Technical fees
  • Legal frees

All these services take extra taxes, and the developer will add all those to the price. So, you don’t have to pay the tax directly but indirectly.

GST for Government Housing Schemes 

All the government housing schemes come under the affordable housing segment. That’s why the GST rate for this is 1% without ITC. All the below schemes come under this tax code:

  • Pradhan Mantri Awas Yojana
  • Rajiv Gandhi Awas Yojana
  • Jawaharlal Nehru Awas Yojana

All these housing schemes fall under the affordable segment with just a 1% tax on them.

GST for Real Estate (Old vs New)

You must be thinking that the new law helps to reduce taxes. Yes, it is, but not that much in affordable houses. You will have some concessions in luxury homes. Have a look at the list here.

GST on houses

You can see there is not much difference in the final tax value. But, if you see this in luxury homes, you can see the difference.

GST on Luxury Homes

The cost you have to pay as an average man has not changed yet, but the way of doing it has changed. You can see it in the chart.

GST on residential property

GST on Ready-to-Move-in House

No, you don’t have to pay any GST on ready-to-move-in properties, but the developer will treat this tax as his expense. That’s why he will charge you more. You are paying taxes indirectly. 

GST on Under Construction House

But in under-construction homes, you have to pay the GST amount based on the value of the House. 

Let me be clear here, what is considered an under-construction home and what is a ready-to-move-in home. You must have the occupancy certificate. If the builder gives you that document it will be treated like a ready movie or it’s under construction. Everything depends on the occupancy certificate.

GST on Land or Plot 

Are there any GST fees on land or plot transitions? No, you don’t have to pay any taxes on the land or plot you bought. But, if you develop something on it, a building on it, you have to pay GST on that building, not on the land.

For example, let’s say you have bought a building worth ₹1 Cr. The law says the value of the land is one-third of the total property value. That means the value of the land is ₹33 lakhs.

So you have to pay GST on that ₹77 lakhs, not on the ₹33 lakhs for the land. That’s what the law says.

Stamp Duty and Registration Charges 

But here, the stamp duty and registration fees are applied for any kind of transaction in real estate.

  • Stump duty: 5% -10%
  • Registration fees: 1%

This money is collected by the State Government. It’s not GST tax, a different tax that you have to pay differently.

History of GST on Real Estate in India

Many people thought that GST for real estate came recently, but the data say its roots back in the 2000s. Here is the list of the process that took 15 years to implement the GST in India.

  • In 2000: Prime Minister Atal Bihari Vajpayee introduced the GST model.
  • 2004: Finance Minister Vijay Kelkar recommended replacing the tax system with GST.
  • 2006: Finance Minister P. Chidambaram fixed a deadline of 2010 to implement the GST system. But, for any reason, it was on hold.
  • 2011: They introduced GST in the Lok Sabha. 
  • 2014: Got approval for implementation.
  • 2015: New law passed.
  • 2017: GST or Good and Service Tax became a fully functional tax code.
  • 2017: 8% GST on under-construction homes.
  • 2019: Affordable homes: 1% and Non-affordable homes: 5%.

This is the complete history of GST for real estate, not on one year that took more than 15 years to implement.

A New Real Estate Tax Law (Section 80EEA)

The law says if you are a first-time home buyer, you can claim up to ₹2 lakhs of GST rebate from the Government. If you are eligible, you can save up to ₹2 lakhs. 

This law is implemented to boost the housing market. Because of the pandemic, the market was facing huge troubles. The Government wants to push the housing market a little. That’s why they have rolled out this law, I think.

I Am Not A Tax Expert

Let me tell you I am not a tax expert. Before you do anything on GST law, please consult with a certified tax expert and then make your move. You will be safe from any legal disputes.

Last Words

So, here is everything you need to know about GST for real estate sector in India. If you have any questions, let me know in the comments. Thanks. 

What is the GST rate on homes under ₹45 lacks?

Pay one percent of the total house value as GST without ITC (Input Tax Credit) and for non-affordable housing, the GST rate is 5 percent with ITC.

Is there any GST on land or plot?

No, you don’t have to pay any taxes on the land or plot you bought. But, if you develop something on it, you have to pay GST.

What is the Stamp Duty charge on a property?

The stump duty charge is 5 to 10 percent of the property value.

What is the Registration charge on a property?

The Registration fee is one percent of the property value.

Is there any GST on the Ready-to-Move-in house?

No, you do not have to pay any GST on ready-to-move-in properties, but the developer will treat this tax as his expense list.

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