Tag Archives: GST implication

GST on Sale of Residential Property by Individual

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On July 1st, 2017, the GST was implemented and became law. Numerous Indian businesses, particularly those involved in real estate, have been significantly impacted by this tax plan. This blog discusses the applicable GST for purchasing homes, apartments, and other real estate, all of which have been adversely affected by this tax plan. This blog post addresses the applicable GST for residential property sales. 

What is the GST on Residential Property in India? 

Before the GST took effect, property buyers had to deal with the hassle and stress of several taxes, including the central excise tax, the VAT, and others. There is no doubt that the taxation of properties at that time was complex and opaque. The GST has changed the way things are. 

When purchasing residential property, the GST was initially 8% for affordable housing and 12% for a home that was not. The taxation system allowed property buyers to benefit from the ITC (Input Tax Credit ) on the initial applicable GST rates. 

However, the 33rd GST Council meeting’s decision to implement new and revised GST rates took effect on April 1, 2019. As long as it is an affordable housing unit, the new GST rate is 1%. In contrast, the GST rate for expensive or luxury properties is 5% without ITC. 

GST on Residential Property 

If a property exists in one of India’s megacities, everyone must pay GST on it. Buying residential real estate in finished complexes, including condos or apartments in finished complexes, is exempt from the GST if it comes with a visible occupancy certificate. 

GST on Residential Property 

Residential Property Type GST until March 31, 2019 GST As Of April 1st 
Luxury or Unaffordable Housing, Unless Under Construction 12%+ ITC 5% Excluding ITC 
Building Affordable Housing8% +ITC 1% Excluding ITC 
For finished residential projects (properties available for immediate occupancy),GST is not ApplicableGST not Applicable 

GST on Residential Property: Prerequisites & Conditions 

A residential property purchase with a 1% GST exemption is subject to some requirements or prerequisites. You must meet several criteria to purchase a residential property with a 1% GST exemption. The housing development must satisfy the following needs to be considered affordable housing: 

  • Residential real estate in non-metropolitan areas falls under the affordable housing category if it is 90 square meters in size and costs up to 45 lacs. 
  • Affordable housing in metro cities means The 60 sq.m. under-construction flat/house/apartment has a price range of up to 45 lacs. 

For flat purchases, you need 1% GST. Meet these requirements

One must purchase at least 80% of the raw materials from any registered dealer to be eligible for a flat GST rate of 1%. If not, the owner of the housing or apartment project must by RCM to pay 18% GST. 

Affordable housing currently under construction does not qualify for an ITC. It would give access to a 1%  GST rate. As a result, the buyer cannot deduct the GST they pay when buying property from their income. 

The Impact of GST on Real Estate, Conclusion

Following the implementation of GST, the real estate sector in India underwent a significant reform. Previously, the housing developer had to pay fees for permits, service taxes, legal costs, excise duty, VAT, customs duty, etc., which had an impact on their taxation procedures and increased the amount of money that buyers of real estate had to pay.

However, the GST law has simplified and organized things. By increasing the real estate tax rate to 12%, the most recent GST tax regime significantly reduced the burden on property buyers. The GST rates on residential property have fallen because of the GST Council meeting in 2019. Since then, it has become easier for Indians to buy real estate.  

The Impact of GST on Renting of Residential Property in India

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On June 28 and 29, 2022, the 47th GST Council meeting occurred. Following the previous GST Council meeting, there were multiple modifications to the Goods and Services Tax (GST). The partial elimination of the GST exemption for services provided in connection with the rental of residential property is one of these significant changes.

It’s crucial to recall that services involving the rental of residential properties for use as a residence were exempt from GST as of July 1, 2017. As of July 18, 2022, certain elements of the exemption will be withdrawn.

Residential and commercial rentals are subject to the GST on residential property rentals. Therefore, even if a residential property is rented out for commercial purposes, the rent remains subject to GST. 

ParticularsNew notificationsOld notifications which are amended vide the new notifications
Notice covering exemption available under GSTNotification no. 04/2022- Central Tax (Rate) dated 13th July 2022 [amendment effective from 18th July 2022]Notification no. 12/2017- Central Tax (Rate) dated 28th June 2017
Notification covering the applicability of the reverse charge mechanismNotification no. 05/2022- Central Tax (Rate) dated 13th July 2022 [amendment effective from 18th July 2022]Notification no. 13/2017- Central Tax (Rate) dated 28th June 2017

The said amendment relating to the applicability of GST on the rental of residential property is briefly covered in the present article.

GST liability for renting a residential property till July 17, 2022

Since the beginning of the Goods and Services Tax (GST), or as of July 1, 2017, any person who is engaged in renting out residential properties specifically for habitation was eligible for a GST exemption. Notably, the exemption listed at SI No. 12 of Notification No. 12/2017- Central Tax (Rate) from June 28, 2017, is tabulated below: 

Heading Description of service Rate Condition 
Heading 9963/ Heading 99721Facilities through the rental of a home for use as a residence NILNIL

The aforementioned makes it abundantly clear that renting out a residential property to anyone who intends to live there is exempt from all regulations. In other words, when renting a residential property to someone for a business purpose, GST is due. 

GST validity for residential property rentals as effective from July 18, 2022

According to notification number 04/2022- Central Tax dated July 13, 2022, SI. No. 12 of notification number 12/2017- Central Tax (Rate) dated June 28, 2017, changed. The amendment states that the phrase “except where the residential dwelling is rented to the registered person” will be added after the words “as a residence.”

Therefore, after the publication of notification no. 04/2022- Central Tax (Rate) dated July 13, 2022, SI. No. as of July 18, 2022, will read as follows: 

Heading Description  Rate Condition 
Heading 9963/ Heading 99721If the property is not rented by a registered person, renting it to be used as a home is prohibited NilNil

With effect from July 18, 2022, GST will apply to residential rentals as follows:

Particulars GST Position post 18th July 2022
Renting a residential property for residential use to the person registered under GST Taxable as of July 18, 2022
(Free from 1 July 2017 to 17 July 2022 and Taxable from 18th July 2022)
Renting a residential property for a personal reason to an individual who isn’t registered with the GST Exempted from 1st July 2017 
Rental of a residential property for a business purpose to a person who is registered for GST Taxable from 1st July 2017
Renting a home for a business for an individual not registered under GSTTaxable from 1st July 2017 

The corresponding modification to the reverse charge service mechanism for renting residential dwellings- 

The fundamental notification, Notification No. 13/2017-Central Tax (Rate), dated June 28, 2017, covers the list of services to which the Reverse Charge Mechanism is applicable. SI. NO. 5AA was added to Notification No. 13/2017- Central Tax (Rate), dated June 28, 2017, by Notification No. 05/2022 – Central Tax  (Rate), dated June 13, 2022. The said SI.No. 5AA is tabulated hereunder-  

SI.No. Description of Service Service providerService receiver 
5AARenting the residential dwelling to the registered person as a serviceAny person Any registered person 

As a result, the registered person (also known as the service recipient) who receives services by renting a residential property is required to pay GST under the Reverse Charge Mechanism. In nut-shell, even if the service provider of the renting of a residential dwelling is registered under the GST, the registered service receiver will be liable to discharge the GST under Reverse Charge Mechanism. 

The conclusion that GST applies to the rental of residential property – 

The following table offers an overview of how GST will be used for residential property rentals starting July 18, 2022. 

Particular GST Applicability GST payable by the service provider GST payable by the service receiver 
Services of renting of residential dwelling for residential purposes to the person registered under GSTGST-taxable as of July 18, 2022,No Yes
Services related to renting a home for private purposes to a person not registered under GST Exempted NANA 

GST on Flat Purchase: A Guide for Home-Buyers

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GST, or the Goods and Services Tax, on home purchases, flats, and apartments is one of the many taxes buyers must pay when purchasing a home. 

In this article, we look at how the GST affects real estate and how it affects homebuyers and flat purchases in general. In addition, we’ll talk about the GST rate on flat purchases and the GST rate on land purchases in 2022.

GST on flats 

On February 24, 2019, the 33rd GST Council Meeting introduced new GST rates that will go into effect on April 1st for residential flat purchases. 

The new proposed GST rate for flat purchases for residential (real estate) transactions is as follows: 

  1. 5% GST charges on a flat purchase will be paid on residential properties outside the affordable housing segment without an input tax credit (ITC).
  2. A 1% GST without an ITC will apply to residential properties in the affordable housing segment. 

The GST on under-constructed flat purchase rates is 12%. The sale of completed homes or the resale of older properties is exempt from the GST for flat purchases. Under the current GST framework for buying flats, builders receive an input tax credit on goods from suppliers or contractors, intending to pass it along to homebuyers. As a result, the current GST on flat purchase systems concerning real estate may alter. 

Input Tax Credit (ITC) 

Understanding input tax credits (ITCs) is crucial before learning about the GST. You can use the ITC to reduce the output tax you pay. You can only pay the final Rs 200 in taxes if you claim an input tax credit of Rs 300. The GST Act permits producers, suppliers, agents, aggregators, e-commerce operators, etc., if the tax on your final product (the output) is Rs. 500 and the tax paid on the purchases (the input) to make the final product is Rs. 

Utilizing the GST Input Tax Credit

Before claiming the ITC, keep the following things in mind:

  1. You must possess the tax invoice for the purchase or the debit note issued by the registered dealer. 
  2. You should have received all the goods and services. 
  3. The supplier must pay the government tax on your purchases in cash or by claiming input credit. 
  4. GST returns filed by suppliers 
  5. The supplier has uploaded the invoice for their GSTR-1, which must reflect in the GSTR-2B of the company.

The positive impact of GST on flat purchase 

  1. Low-Cost Construction:  GST on a flat will lower the rate of things like cement, steel, and other building materials, resulting in dramatically lower construction costs. Lower real estate prices will eventually help middle-class buyers. 
  2. ITC (Integrated Taxation Solution): A unified tax base is critical in the real estate market, but recently builders and developers have been taxed even on the raw materials they purchase. GST on purchases solves these problems by unifying all taxes. 
  3. Zero income rate: The real estate sector’s fiscal operation is not subject to VAT or service tax rules. 

In 2023, how do you calculate the GST on a flat purchase?

Starting on April 1, 2023, GST is applicable on the purchase of an apartment. And if you ever find yourself in a situation where you need to figure out how much GST you will have to pay on a flat purchase, follow these steps: 

Steps for Calculating GST on a Flat Purchase in 2023 

  1. Calculate the apartment’s total cost before GST is applied. It involves accounting for all additional costs like stamp duty, registration, and legal fees.  
  2. Add 5% GST to get the total price. 
  3. The amount after the GST deduction from the total will be your final payment. 

It’s important to remember that this only applies to apartments purchased starting on April 1, 2023. For any flats purchased before April 1st, no GST will apply to the purchase price. 

With the aid of this guide, estimate the amount of GST you’ll have to pay when buying your next apartment and guarantee a smooth transaction!

How do I avoid GST on flat-rate purchases?

When purchasing a flat, you can avoid paying GST by 

  1. Purchase a completed and constructed flat. 
  2. Purchase a flat that has an occupancy certification. 
  3. Purchase a second-hand flat.

The amount of GST enabled for building services would be less if the land’s worth was removed from the total weight. If you want to know how to avoid GST on flat purchases, the deduction would always be beneficial when the value of the land represents a percentage of the total value greater than 33.33 percent. 

The impact of GST on the real estate market 

The GST has been one of the most significant reforms in the real estate market. The developer already pays customs duty, VAT, excise duty, legal expenses, service taxes, permission fees, etc., hampering their tax processes and burdening homeowners. 

The GST simplified the property tax. The new GST regime increased the real estate tax rate to 12% and lowered property buyers’ burdens. Taxation impacts developers and property purchasers. The 34th Council meeting held in 2019 announced new GST rates.

Conclusion

In general, the subject of GST on flat purchases is difficult to understand. When purchasing a flat, buyers must be aware of the fundamentals of GST and seek current advice from a reputable expert to ensure that they’re making the right choices. 

Be sure to understand any applicable GST at the time of a flat purchase, as well as what the GST rate will be and how to calculate the GST payable. It’s essential to confirm your eligibility for any applicable GST exemptions. 

Home buyers can ensure that their purchase is compliant and legal, fully understand GST on flat purchases, and protect themselves from any unpleasant surprises in the future by carefully reading this guide and doing additional research.