GST on Flat Purchase

When purchasing a flat, understanding the impact of Goods and Services Tax (GST) is crucial, as it directly affects the overall cost of your investment. GST, introduced under the Goods and Service Tax Act on 1st July 2017, has replaced indirect taxes like excise duty, VAT, and services tax, bringing transparency to the taxation process. For homebuyers, especially those considering under-construction properties, it’s essential to factor in GST alongside other costs such as property tax, mortgage tax, and maintenance. This article provides complete information regarding GST on flat purchase and others. IndiaFilings helps you to file GST returns with expert assistance!! [shortcode_14]

What is GST on Property in India?

GST on property in India refers to the Goods and Services Tax (GST) applied to real estate transactions, which was introduced by the Indian government in 2017 to harmonise global taxation frameworks. Before GST on flat purchase, multiple taxes like value-added tax (VAT), service tax, and central excise were levied on property purchases, making the process complex and less transparent.

What is GST rates on Property Purchase?

Initially, the GST rate for property acquisition was 12% for non-affordable housing and 8% for affordable housing. However, after the 33rd GST Council meeting, revised rates were implemented on April 1, 2019. Currently, affordable housing is subject to a 1% GST rate, while non-affordable or luxury housing is taxed at 5% without the input tax credit (ITC).

What is Input tax credit (ITC) in GST?

Input tax credit (ITC) in GST is a unique aspect of the GST law that distinguishes it from India's previous tax structure. Input tax credit allows businesses, including real estate developers, to offset their taxes on purchasing goods and services against their output tax liability. For instance, consider a developer with a finished product worth ₹80,000 and must pay tax on it. If the developer has already paid ₹70,000 in input tax while purchasing materials like bricks, tiles, and wood, they would only need to pay ₹10,000 in output tax after accounting for the input tax credit.

GST on Luxury Real Estate

The introduction of the Goods and Services Tax (GST) has significantly affected the market for luxury real estate in India. High-end real estate, characterised by opulent properties with first-rate facilities, infrastructure, and amenities, has experienced changes in the tax structure due to GST. This shift has influenced the luxury property industry, which has seen a significant upsurge in recent years. The GST framework alters how taxes are applied to these premium properties, affecting developers and buyers in the luxury real estate market.

GST on Under-Protection flats

When purchasing under-construction flats, luxury property buyers must know the GST implications. Under the GST system, under-construction properties are subject to a 5% tax rate, though this rate can vary depending on the project's type and the state. While developers can claim an input tax credit (ITC) on the tax paid for construction materials and services, they are not obligated to pass this benefit on to the buyer. Buyers must ensure that they receive the ITC benefit from the developer, as this can influence the overall cost of the property.

GST on New Flats

The GST on new flats is set at 5%, directly influencing the ultimate purchase cost. Developers are eligible to receive the input tax credit (ITC) advantage for the supplies and labour used in constructing the apartment. However, developers don't need to pass this ITC benefit on to the buyer. Therefore, the final cost of a new apartment may vary depending on whether or not the developer chooses to transfer the ITC benefit to the buyer. This can affect the overall expense and should be considered when budgeting for a new flat.

GST on Ready-to-move flats

GST does not apply to ready-to-move-in flats, which are considered completed properties. In contrast, if a buyer acquires an apartment with unfinished interior work, it is classified as an under-construction property, and a 5% GST is levied on it. This distinction is important for prospective buyers to understand, affecting the overall purchase cost.

GST on Resale Flat

In India, GST is not applicable on the sale of resale flats. Resale flats are classified as immovable property, and GST is not levied on such properties once a completion certificate has been issued. This exemption means buyers and sellers of resale flats do not need to factor in GST costs during the transaction, simplifying the purchase process for previously owned properties.

GST on Housing Society Maintenance Fees

In India, flat owners are liable to pay 18% GST on residential property maintenance fees if they contribute at least ₹7,500 to their housing society each month. Housing societies or residents' welfare associations (RWAs) collecting this amount from their members must also pay an additional 18% tax on the total received. However, if the housing society's annual turnover is below ₹20 lakhs, GST is not required. For instance, if a housing society's maintenance fees are ₹8,000 per month per member, the full amount of ₹8,000 is subject to GST, not just the ₹500 exceeding the ₹7,500 threshold. Additionally, if multiple owners reside in the same society, each owner's maintenance fees are taxed separately.

GST on Developable Flats

Purchasers of developable plots are not required to pay GST, as established by the Central Board of Indirect Taxes and Customs (CBIC) circular dated August 3, 2022. This ruling clarifies that GST does not apply to plot sales, even if basic infrastructure has been developed. Similarly, the Karnataka Authority for Advance Rulings (AAR) has supported this stance, while past decisions by other authorities, such as the Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) in July 2022, had applied an 18% GST on land sold post-development. Before the GST system, sales of immovable properties were exempt from value-added tax, with only direct taxes like stamp duty and registration fees being applicable. These fees remain applicable under GST and affect already-built and under-construction properties across India. In the table below, we have summarized the GST rates for various cases,

Category	GST Implications
Luxury Real Estate	GST has changed the tax structure for luxury properties, impacting both developers and buyers.
Under-Construction Flats	5% GST applies; developers may claim ITC but are not required to pass it on to buyers.
New Flats	5% GST; ITC may or may not be passed to buyers, affecting the final cost.
Ready-to-Move Flats	No GST on completed properties; 5% GST applies if interior work is unfinished.
Resale Flats	No GST on resale flats classified as immovable property after completion certificate issuance.
Housing Society Maintenance Fees	18% GST on fees above ₹7,500/month; full amount taxed if the threshold is exceeded.
Developable Flats	No GST on developable plots per CBIC circular; Karnataka AAR supports this, despite past rulings applying GST.

GST Rates for Flat Buyers: Key Factors to Consider

The GST rates on flat purchases can significantly influence your home-buying decision. Here's a breakdown of how GST can affect you:

Budget Considerations: GST charges can add to your overall costs when purchasing a new or under-construction flat. However, GST won't be applicable if you're buying a ready-to-move-in property.
Residential Property Taxes: The GST rate for residential properties varies based on the property's luxury level.
Land Purchases: GST does not apply to land purchases, making it a more cost-effective option for those considering building their own homes.
Input Tax Credit (ITC): If you have the necessary documentation, you can claim ITC, which can offset some of the GST costs on your property purchase.
Rate Changes: GST rates can change over time. It's crucial to stay updated on the current rates and consult with an IndiaFilings GST professional to understand how they may affect your decision.

Conclusion

Understanding the GST on flat purchase is essential for homebuyers in India. GST, introduced in 2017, has replaced multiple indirect taxes. While the GST rates for flat purchases have changed, the general influence remains significant. Homebuyers, particularly those considering under-construction properties, must factor in GST alongside other costs to make informed decisions. Additionally, knowing about GST on luxury real estate, under-construction flats, new flats, ready-to-move flats, resale flats, housing society maintenance fees, and developable flats is crucial. Streamline your GST return filing process with IndiaFilings experts!! [shortcode_14]