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How to Calculate GST on Property Purchase?

Read this blog to learn more about the impact of GST on the real estate market in India.

Implemented in India on July 1st, 2017, the Goods and Services Tax aimed to bring the previous system of taxes-upon-taxes under a single umbrella term to make tax compliance more manageable. It subsumed around 17 different types of taxes to present a flat percentage on goods, commodities, and services. Since its implementation, the Goods and Services Tax has largely benefited India’s budding economy. The introduction of the Goods and Services Tax, however, didn’t just affect service providers and retailers around the country. It also markedly impacted one of the least regulated markets in India: real estate. Under the new GST system, taxation on real estate has seen many changes, and so far, it’s been mixed results. Let’s see how to calculate GST on Property Purchases in this blog.

Where is GST Applicable When Purchasing Property?

The Goods and Services Tax applies when purchasing under-construction projects in India’s biggest cities. That means you must pay GST rates when flat-purchasing properties are currently under construction. However, under the new GST system, this tax doesn’t apply to flat purchases of completed projects (completed projects are those which have received a completion certificate from the proper construction authorities).

The GST rates have been split according to the housing type, meaning buyers pay different rates for affordable housing and non-affordable housing (luxury projects). The rates are as follows: 

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

What Is Meant By Affordable Housing?

Under government-determined specifications, housing units with a value of up to Rs. 45 lakhs (Rs. 45,00,000) are qualified to be affordable. Housing units in large cities like Delhi, Bengaluru, Chennai, Hyderabad, and other locations like Kolkata must also conform to government-determined spacing definitions: they should measure up to 60 square meters (carpet area). 

Housing units outside these heavily-populated regions qualify as affordable housing if they cost up to Rs. 45 lakhs and have a carpet area of up to 90 square meters. If your house stretches beyond either of those limits, you must pay luxury housing GST rates, which currently stand at 5% without ITC. 

What is Input Tax Credit (ITC)?

Input Tax Credit is one of the features of the Goods and Services Tax and allows service providers to receive an input tax credit when filing their output taxes. That means instead of paying taxes multiple times when purchasing goods and services, real estate developers can now count that as credit when filing their output tax. 

GST’s Impact on the Real Estate Market

On Buyers: Removing the Cascading Effect

The previous taxation system presented the cascading effect, where paying one tax would lead you down to another. In the end, buyers would have to pay about six different types of taxes when purchasing properties under construction, which understandably made the process much more complicated. Some of these were the VAT tax, GST registration charges, stamp duty, and service tax. 

Under the GST system, these taxes have been combined into the Goods and Services Tax with a flat rate of 12%, which is applicable only on projects currently under completion. The tax doesn’t apply at all on housing projects, affordable or luxury, that have already been completed. 

These are some of the biggest reasons GST has positively impacted the Indian real estate economy. However, if you’re unsure about how GST works, it might be worth taking the time to buff up on this tax before making a property-buying decision. 

On Developers and Builders: Reducing Construction Costs

The Goods and Services Tax didn’t just make life easier for buyers. It also resulted in massive savings for real estate developers and builders, further giving the industry incentive to grow in a stagnant market. Under GST, multiple taxes are subsumed into the GST tax, and the availability of Input Tax Credit has also made life easier for real estate developers today. 

One of the most significant benefits of GST for real estate developers is an enhanced focus on recording expenditure. The availability of ITC, and cloud storage of construction invoices, has led developers to focus on recording every area of expense for new constructions. 

Applicability of Stamp Duty And Other Things You Need to Know About Calculating GST on Property Purchase

But before you go out and decide to purchase a home under construction, take a second to check out the following section. It lists some of the things you should know about GST is calculated in the real estate industry, starting with an older tax that is still applicable in some areas of real estate:

  • Stamp Duty: While stamp duty is excluded when calculating the GST, it continues to apply when purchasing both completed projects and properties currently under construction. 
  • GST on Maintenance Charges: If you own a flat, pay at least Rs. 7,500 as maintenance charges to housing society, you’re also liable to pay 18% GST on that charge. Housing societies and RWAs (Residents’ Welfare Associations) that collect Rs. 7,500 per month per flat also have to pay the same. 
  • Owners of Multiple Flats Are Charged Separately: If you own several flats belonging to the same housing society, you will be charged 18% GST separately for each unit. 
  • GST Doesn’t Apply to Ready-to-Move-In Flats: However, here’s some good news: you don’t have to pay any GST fees on buying plots of land or when purchasing ready-to-move-in flats. 

Common Misconceptions About Gst on Residential Property Purchase

There are several misconceptions surrounding GST on residential property purchases, which can be confusing for first-time homebuyers. It’s important to clarify these misconceptions to ensure a better understanding of the tax implications. Here are some common misconceptions:

  1. Calculation of GST: Some may think that GST on property purchases is calculated in a straightforward manner similar to other GST implementations. However, the GST on residential properties can vary based on factors such as affordable and luxury housing schemes, construction phase, and property type.
  2. Applicability on Land Purchases: It’s a misconception that GST is applicable on land purchases. In reality, buying land does not attract GST.
  3. Affordable Housing Projects: While it’s believed that affordable housing projects offer better GST rates, the rates may depend on factors such as the size and value of the property. The affordability with GST applicability may vary.

How to Calculate GST On Property Purchases?

If you’re worried about being able to Calculate GST on Property on your real estate purchases, you don’t have to worry. Here’s how you can calculate GST on your property purchase:

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
Instant GST clarity for your business. Calculate now using GST Calculator India.

The Takeaway: Getting the Help You Need

If you’re thinking of getting into the real estate industry, having a working understanding of the current GST taxation: laws will help you understand the expenses behind the construction and purchase of properties today. However, even with all this information, it’s not always easy to understand what you should do. And when the issue of tax compliance is raised, it’s always better to be safe than sorry. Hope this blog regarding how to calculate GST on Property Purchase is helpful.

That’s why you should check out Vakilsearch, we are a legal services company that has made a name for itself by helping its clients navigate whatever legal issues they need help with. And if you’re wondering, yes, that ensemble includes helping you with your property GST laws! 

FAQs on Calculate GST On Property Purchase

How is property GST calculated?

The GST rate is 1% for properties that fall under the affordable category, and 5% for other properties

What is the GST rate for property purchases?

1. The GST on an under-construction flat (Affordable housing) is 1% without ITC from April 2019 2. GST on luxury flats is 5% without ITC from April 2019 onwards

What is 12% GST on property?

The 12% GST (Goods and Services Tax) applies to commercial property purchases.

How is GST calculated on purchase transactions?

To calculate GST on property purchases, the following formulas can be used: For affordable housing: GST amount = (Property cost per sq. ft) * 1% For non-affordable housing: GST amount = (Property cost per sq. ft) * 5%

How do you calculate GST with example?

If the property cost per sq. ft is Rs. 10,000 for a non-affordable housing unit, the GST amount would be: GST amount = 10,000 * 5% = Rs. 500 per sq. ft

Is GST charged on total value of transaction?

GST is charged on the total value of the property transaction, and the GST amount is added to the total cost of the property purchase.

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