Revised GST rate on real estate 2024 (2024)

Launched in India on July 1, 2017, the goods and services tax (GST) law was touted to be the biggest tax reform in India after Independence. While the GST regime does not directly cover the real estate sector, construction of complexes, buildings, civil structures, etc., is covered within the meaning and scope of “works contracts services” under Section 2(119) of the Central Goods and Services Tax (CGST) Act, 2017.

However, GST is not applicable if you buy a property in completed projects. Legally, a completed project is that which has received a completion certificate (CC) from a competent authority. Para 5 of Schedule-III of the CGST Act, 2017, says that sale of land and building is neither supply of goods nor supply of services if an issuance of completion certificate has been granted to the unit.

Taxes on house purchase before GST

Before a single tax in the form of the GST was introduced in 2017, a variety of state and Central taxes were imposed on buildings across the various stages a project’s construction cycle. While these taxes increased the cost of development for builders, no credit against this tax was available to the them against the output liability. Some of the taxes that real estate developers had to pay before the GST came into force included:

• Value Added Tax (VAT)
• Central Excise
• Entry Tax
• LBT
• Octroi
• Service tax, etc.

The cost incurred on these taxes by builders was then transferred to the buyer. Moreover, the complexity involving rate applicability of the numerous taxes also made it possible for developers to manipulate numbers to charge more from buyers. For a common buyer, it used to be an uphill task to find out the VAT, Central Excise, Entry Tax, LBT, Octroi and service tax rate applicable on property construction.

Taxes on real estate after GST launch

The GST subsumed multiple indirect taxes to offer a uniform regime to the taxpayers. Since its launch, various changes have been made with regard to the bracket under which real estate is taxed under the GST regime.

Central and state taxes that GST subsumed

Central taxes

1. Excise Duty
2. Customs Duty
3. Special Additional Duty of Customs
4. Service Tax
5. Central Sales Tax
6. Central surcharge and cess on supply of goods and services

State taxes

1. State Value Added Tax
2. Entertainment Tax
3. Luxury Tax
4. State Excise Duty
5. State surcharge and cess on supply of goods and services
6. Taxes on advertisem*nt
7. Purchase tax
8. Taxes on lotteries, gambling and betting

See also: All about TDS on purchase of property

GST rate on real estate 2024

Homebuyers in India pay a GST on the purchase of under-construction properties like flats, apartments, bungalows and developable land. The GST rate is 1% for properties that fall under the affordable category. For other properties, the GST rate is 5%.

GST rate on flat purchase in 2024

Also check out our guide on GST e way bill login.

GST on government housing schemes

The government has clarified that government-led mega housing projects meant for the common man, will attract only 1% GST under the new regime. These housing schemes include as the Jawaharlal Nehru National Urban Renewal Mission, the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana and housing schemes of state governments.

Check out our guide on GST search and GST verification

GST on construction services

While real estate in India does not directly fall under the purview of the GST regime, various activities and services in the sector are taxable under the new regime. Following are the rates at which associated activities in the construction sector are taxed, under the GST regime in India:

GST rate on building materials

The Goods and Services Tax (GST) covers real estate in India through works contracts and building and constitution works, as all components used in the development work attract GST. To put it simply, covered under the new regime is the Indian construction industry, which continues to attract high rates of taxes through a blend of levies imposed on the purchase of various building construction materials.

Read our article on cement GST rate

GST on maintenance charges

Flat owners are liable to pay 18% GST on residential property, if they pay at least Rs 7,500 as maintenance charge to their housing society. Housing societies or residents’ welfare associations (RWAs) that collect Rs 7,500 per month per flat, also have to pay 18% tax on the entire amount. Housing societies which have an annual turnover of less than Rs 20 lakhs are, however, exempted from paying the GST. For the GST to be applicable, both the conditions should apply – i.e., each member should pay more than Rs 7,500 per month as maintenance charge and the annual turnover of the RWA should be higher than Rs 20 lakh.

The government has also clarified that the entire amount is taxable, in case the charges exceed Rs 7,500 per month per member. For example, if the maintenance charges are Rs 9,000 per month per member, the 18% GST on flats will be payable on the entire amount of Rs 9,000 and not on Rs 1,500 (Rs 9,000-Rs 7,500). Also, owners with multiple flats in the same housing society will be taxed for each unit separately.

On the other hand, RWAs are entitled to claim ITC on tax paid by them on capital goods (generators, water pumps, lawn furniture, etc.), goods (taps, pipes, other sanitary/hardware fittings, etc.) and input services such as repair and maintenance services.

GST on rent

When is the tenant liable to pay GST

GST-registered tenants, who lease a residential unit will have to pay 18% tax on the rent amount. An amendment in this regard was announced by the GST Council on July 13, 2022. The new provision applies to individual service providers earning more than Rs 20 lakh in a year and businesses generating an income over Rs 40 lakh annually — in both the instances, GST registration becomes mandatory for the individual/business.

When the landlord is liable to pay GST

The GST regime treats renting of residential property for business purposes as supply of services. An 18% GST rent on residential flats is charged from the landlord on such rental income under this regime, if the rent amount per year exceeds Rs 20 lakh. In this case, landlords have to register themselves, to pay the GST on their rental income. On letting-out of commercial properties, a GST at 18% is levied.

GST on home loan

While there is no applicability of the GST on home loan repayment as far as the borrower is concerned, financial institutions offer several ‘services’ as part of home loans. Based on the fact that these are services, the applicability of GST comes into picture. Consequently, if you are taking a housing loan, the bank would charge GST on the processing fee, technical valuation fee and legal fee.

GST on a one-time maintenance deposit collected by builders

The GST is applicable to the one-time maintenance deposit that builders collect from home buyers, the Gujarat bench of the Authority for Advance Rulings (AAR) has said. According to the authority, this charge falls in the category of supply of services and is non-returnable in nature. The AAR, however, added that the GST will be deducted from the maintenance amount when this money is actually spent in carrying out maintenance works in future.

Recall here that most real estate developers collect a one-time maintenance deposit from home buyers, before the formation of the residents’ welfare associations or cooperative housing societies that take over the responsibility of maintenance from the builder. After the formation of the RWA and CHS, they become solely responsible for the maintenance work and can come up with their own set of rules for calculating maintenance charges. The builder would no longer be able to have a say in the matter.

This individual liability of home buyers is calculated on the basis of the size of the property – a certain per sq ft rate has to be paid by the home buyers. The entire amount collected from buyers as a one-time maintenance charge is then deposited into a common fund and is used for its intended purposes as and when required.

Since there has been an absolute lack of clarity on laws governing collection of this levy, there have been various instances, where disputes have arisen between buyers and developers on the applicability of GST on the one-time maintenance charge.

It has been a common practice among developers to deduct GST at the rate of 18%, right after the collection and then deposit the remaining amount into the common fund. After the AAR ruling, developers will have to deposit all the amount without any GST deduction.

Also note that builders were not liable to pay service tax on such maintenance deposits before the GST regime became applicable in 2017.

With the AAR’s ruling, RWAs and CHSs can now collect the GST from society members as and when the time to utilise this amount comes, since the builder would charge this levy initially. In essence, it is only a deferral of the payment, as far as home buyers are concerned.

GST on developable land

No GST will be applicable if your are investing in developable plots. This has been established by a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on August 3, 2022, which said plot sale does not attract GST even if some basic infrastructure has been developed. The the Karnataka AAR has also recently passed an order on similar lines.

earlier, some state authorities has taken a contrarian view. In July 2022, for instance, the Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) said that land sold after doing development activity will attract 18% Goods and Services Tax (GST). A similar verdict was passed by the Gujarat Authority of Advance Ruling in 2021.

Before the GST regime, sale of immovable properties was excluded from the purview of the value-added tax and thus, only direct taxes like stamp duty and registration charges were paid during such transactions.

What is developable land?

Only those plots, where the owner has obtained all the necessary permissions from local and municipal authorities to carry out future development over the land parcel, qualify as developable plots. To facilitate the future development, the owner also has to develop the basic infrastructure. If any or all of these activities have been performed on the land parcel, it would qualify as developable land:

1. Demarcation of plot
2. Ground leveling
3. Boundary wall construction
4. Road construction
5. Construction of overhead tanks
6. Laying work of water pipelines
7. Laying work of underground sewerage lines
8. Setting up of water harvesting facility
9. Setting up of sewage treatments plants
10. Development of landscaped gardens
11. Setting up of a drainage system

GST on plot

While the sale of plots is also outside the purview of the GST regime, any small construction on the plot would attract GST. In case of the sale of such a plot, one-third of the value of the plot will be excluded and GST will be levied on the remaining two-third value of the land.

GST impact on stamp duty and registration charges

Despite the demands made from time to time, ever since the GST regime into force, to discontinue stamp duty and registration charges on property, the government has made no move on this front. Hence, property transactions in India continue to attract stamp duty and registration charges. While states levy stamp duty in the range of 5%-10%, the registration charge is either 1% of the property value or a standard fee.

GST refund on flat purchase cancellation

Changes are likely to be made in the GST law to allow homebuyers claim GST refund in case they cancel home purchase for which they have already paid the tax. So far, there is no procedure in the new tax regime that allows unregistered entities ─ including homebuyers ─ to claim GST refund. In the 48th GST Council meeting held on December 17, 2022, the Council recommended an amendment in the CGST Rules, 2017, along with issuance of a circular, to prescribe the procedure for filing application of refund by the unregistered buyers in such cases.

Read our full coverage on applicability of GST on flat cancellation.

Busting the myths about GST on real estate

GST is not applicable on ready-to-move-in flats; it is applicable on under-construction flats only

It is important to note that the GST does not cover the real estate sector under its ambit. The tax rate applicable on a property building is charged under ‘work contracts’. This is precisely why a developer cannot charge GST on the sale of ready-to-move-in homes. Upon completion and after receiving the occupancy certificate, a property is categorised as ready-to-move-in and is out of the purview of work contract. In short, the GST would apply on the sale of under-construction properties that have yet to receive the OCs. It also begs mention here that in the previous regime, buyers also had to pay service tax on the purchase of ready-to-move homes.

However, since the developer/owner has paid GST as part of the purchase, he would eventually package this expense as part of the overall cost of the property. This basically means that while there is no GST applicability on ready homes, the buyer ultimately pays it anyhow.

GST is not applicable on land transactions

Sale of land is also outside the purview of the GST on construction services, as the sale does not involve the transfer of any goods or services. As the cost of land is a crucial factor that determines property prices, GST provides a standard abatement of 33% of the total contract value, towards value of land for taxable real estate transactions.

How to calculate GST on under-construction flat?

Suppose that an under-construction property worth Rs 100 is sold by a builder to a buyer. To calculate the GST on building, Rs 33 will be counted out as the land value and the GST on construction would apply only on the remaining Rs 77.

What is affordable housing under GST?

According to the government-determined definition, housing units worth up to Rs 45 lakh qualify as affordable housing. However, the unit must also conform to certain measurements limits to qualify as affordable housing. A housing unit in a metropolitan city qualifies to be an affordable house if it costs up to Rs 45 lakh and measures up to 60 sqmt (carpet area). The Delhi-National Capital Region, Bengaluru, Chennai, Hyderabad, the Mumbai-Mumbai Metropolitan Region and Kolkata are categorised as metropolitan cities. A housing unit in any other city barring the ones mentioned above in India qualify to be an affordable house if it costs up to Rs 45 lakh and has up to 90 sqmt of carpet area.

GST calculation on affordable property

Here’s a look at how to calculate GST on flats’ purchase in the affordable housing segment before and after the change in rate in April 1, 2019:

How did GST impact luxury property?

Under the new GST rates, buyers of luxury properties will save more than they would have earlier. Here’s a look at how to calculate GST on flat purchase in the luxury segment:

What is input tax credit (ITC) under GST?

A unique characteristic of the GST law is its ITC system, which makes it different from the previous tax system in India. From the start of a housing project, till its completion, a real estate developer pays tax multiple times on the purchase of goods and services. Under the GST regime, the builder would get input tax credit when he pays his output tax.

Example:

A developer has to pay Rs 25,000 as tax on his final product. The builder has already paid Rs 21,000 as input tax, while purchasing materials such as steel, cement, paint, etc. In this scenario, he would have to pay only Rs 4,000 as output tax, after adjusting the input tax credit.

How did GST impact real estate sector?

Since the launch of the GST in 2017, investment in under-construction properties has become more hassle-fee for a common man, especially due to the end of the old tax regime under which such investments attracted a multitude of taxes. A unified tax regime helps buyers have clarity on the kind of taxes they would have to pay at the time of home purchase.

Investment in affordable property has also got a major push with the government rationalising GST rates on affordable property.

From developers’ point of view too, the GST regime has been highly supportive. “Under the erstwhile regime, developers would be liable to pay a multitude of taxes such as VAT, Central Excise, Entry Tax, LBT, Octroi, Service Tax, etc., the credits of which were not freely available against the output tax liability. However, the GST regime provides for ITC eligibility on construction and other services procured, thereby eliminating the inefficiency ushered in by the cascading effect of taxes,” says a report by consulting giant PwC India.

Latest news

GST applies if electricity charges added to rent, maintenance fee

When electricity charges are bundles with rent or maintenance fee imposed by real estate developers, mall operators or airport operators, such a service qualifies as a composite supply under the Goods and Services Tax (GST) regime. As a result of this, such a service would attract 18% GST, the Central Board of Indirect Taxes and Customs (CBIC) has clarified. Even if electricity is billed separately, the supplies will constitute a composite supply, it added. The new clarification by the CBIC means tenants of commercial properties will have to pay 18% GST on electricity charges if the service is bundled with renting of property or its maintenance charge. According to tax experts, this would result in increased cost of renting for tenants as landlords would factor in a higher rate while offering the supply.

FAQs

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com