GST on Real Estate – GST impact on under construction property purchase

In Stock Market | Last Updated October 16, 2017|3 Comments

real estate

GST has replaced multiple levels of taxation in India. If you are planning to buy a property in India you should know GST rate first. It will help you in knowing exact impact on your budget.

Buying a house is once in a lifetime investment and a very significant one. But there are many costs, besides the cost of property, which goes unnoticed while making a decision. GST is one of them. Let’s try to understand how you can avoid GST on real estate.

GST on Real Estate

For better understanding GST impact on real estate, let’s divide property types into three categories (1) Under Construction Property (2) Ready to move property and (3) Rented property.

GST on Under Construction Property

The property which is under construction and where BUC (Building Usage Certificate) is not issued by the local authority is classified as under construction property.

As the supply of goods and services is involved in under construction property GST is applicable. The rate of GST is 12% with full input tax credit. This means if you are planning to purchase real estate property, you should buy a property where BUC is issued. This will help you to save extra 12% GST cost.

Also Read – Real Estate – Real Assets or Real Liability

The rate of GST on under construction property for residential and commercial usage is same. The amount of GST needs to pay by a buyer to the builder. On the other hand, the builder has to pay GST on services availed, and also on the services provided by government or local authorities, like municipalities, etc. Builder will receive the benefit of input credits, on materials such as steel, etc, which will be deducted from their tax liabilities. As per law, a builder is mandatorily required to pass on the benefits accrued from GST to home buyers.  If builder pass on this benefit base price of property will be less and it will benefit the buyer.

GST on ready to move property

GST is not applicable on ready to move property and resale property. The property which is ready for usage including resale property is out of scope from GST. This means if you are planning to buy property opt for resale property or ready to move property.

Stamp duty 4.9% and 1% registration charges will continue to be applicable, irrespective of whether the property is under-construction or constructed.

Stamp duty cannot be avoided. However, 1% registration charges will be NIL if a property is purchased on the name of women.

GST on Rental

GST on rent is taxed @18% of the rent paid. However, GST is only applicable on renting of commercial property. It is not applicable on renting of residential property.

The limit of Rs.20 Lakh is for all states. This means if the total value of services provided and goods supplied by the landlord during the financial year is less than 20 Lakh, a landlord is not required to obtain GST registration number and is exempted from collecting GST on Rent. In case of GST is levied on rent, the landlord is required to prepare proper GST invoice.

After understanding impact of GST on real estate property let’s take a look at simple checklist that property buyer can follow.

Also Read – How to file complaint under RERA Online?

Real Estate Checklist for property buyer

For Builder

  • Builder work experience and credibility
  • Builders capability and track record to complete the projects on time
  • Is the builder is known for qualitative work?
  • Builder and project are registered under RERA or not.
  • Is the project matching with the quality you are looking for or not?

For project

  • Location of the project and rate applicable to the area.
  • Easy accessibility of the project.
  • Locality and civil infrastructures nearby project like schools, hospitals, market, daily necessities available in close vicinity.
  • Availability of water supply, drainage, gas supply for the project.
  • BUC completion of the project and applicability of GST.
  • The power supply backup facility, CCTV, Lift, garden and other amenities offered in the project.
  • Future prospects of facility nearby project.
  • Availability of enough parking place for every flat.
  • Monthly maintenance detail if available.

For the Property/Apartment

  • Floor Plan of the apartment and size of the flat/property.
  • The additional facility offered by builder along with the property.
  • Availability of electric, TV and AC fitting points.
  • Provision of storage room.
  • Carpet area of the property.

For Documentation

  • Legal and approval document of the construction is available or not.
  • Old registry document of the property and plan clearance document.
  • The rate quoted by the builder is as per prevailing rate in the market or not.
  • Hidden charge or extra charged if any asked by the builder.
  • Clearance from local authority and issuance of occupancy certificate in case of ready to move property.
  • The clearance document of the project for the loan.

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2 Comments

  1. samarjeet k singh says:

    Sir,

    I need your help for some financial planning. Can you please check the below information and help. Thank you.

    My age – 34
    Income – 1,00,000/month
    Married and spouse income is 1,00,000/month. We do not have kids.

    Investments are –

    RD – 10,000 per month
    FD – 200,000 rupees

    MF –
    1. SBI Bluechip – 10,000 per month
    2. Aditya birla frontline equity – 10,000 per month

    Insurance – 1 Crore term plan.

    Liabilities – 50 lakh house loan

    Goals/Questions:

    1. Want to settle the house loan in next 5 years.

    Please let me know if we are on the right track.

    • Dear Mr.Samarjeet,

      I suggest to increase investment.Investment of 30000 per month (Mutual fund and RD) will not be enough to settle house loan in next 5 years.I suggest to increase investment in mutual fund.I also suggest to start making repayment of your home loan.

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