How to Calculate GST on Under-Construction Flats?
Jan 03, 2024
Buying a home is often seen as a symbol of independence, stability, and success. It's a significant moment in one's life – both personally and financially. However, beyond the initial down payment, homeownership comes with a host of long-term financial responsibilities.
There are several ongoing expenses to keep in mind, such as home loan EMIs, insurance premiums, maintenance costs, and taxes.
Among these, taxes can add up significantly, including property tax, stamp duty, and Goods and Services Tax (GST), among others.
GST is an indirect tax that applies to goods and services in India. Since its introduction in 2017, GST has simplified India's tax system, replacing a patchwork of previous taxes at both central and state levels.
Understanding GST on under-construction properties is crucial for both homebuyers and developers, as it directly affects the overall cost of homeownership.
GST on Under-Construction Properties
When purchasing an under-construction property, the GST rate can vary based on the type and price of the property. Here's a quick breakdown:
- If the property price is up to INR 45 lakhs (affordable housing), the GST rate is 1%. Additionally, in metro cities, the carpet area must be up to 60 sqm, while in non-metro cities, it must be up to 90 sqm to qualify as affordable housing.
- This rate does not include the Input Tax Credit (ITC), meaning you can't claim a refund for the tax paid on materials used in construction.
- For properties priced above INR 45 lakhs, the GST rate is 5%. This also does not include ITC.
- The GST rate for commercial properties is 12%, but ITC is available. This means developers can claim refunds for taxes paid on construction materials.
When calculating GST on an under-construction property, the land value is deducted from the total price because the land is exempt from GST. This helps lower the taxable amount.
For an easy calculation of your GST liabilities, you can use third-party online calculators. However, it's always wise to double-check your calculations with a tax professional to ensure accuracy.
Impact of GST on Under-Construction Properties
When GST was introduced, it fundamentally changed the taxation of property transactions in India. Instead of a complex web of indirect taxes like service tax, VAT, and excise duty, GST streamlined the system, bringing transparency and uniformity. This simplification has made it easier to calculate taxes on properties, benefiting both homebuyers and developers.
Impact of GST on Property Prices
With a reduced 1% GST rate for affordable housing, the cost of these homes could be more manageable, making them more attractive to buyers. For non-affordable housing, the 5% rate is lower than the earlier 12% GST with ITC. However, the lack of ITC means developers cannot pass on any savings from lower tax rates on construction materials to the buyer. For commercial properties, GST stands at 12%. But with the option to claim ITC, developers can offset their tax burden, potentially keeping these properties at more competitive prices.
Impact of GST on Developers
For developers, GST has been a double-edged sword. On the plus side, the ITC on construction materials allows developers to reduce the overall cost of building. This is particularly useful for commercial projects, where margins can be tight. However, the non-availability of ITC for residential projects means higher construction costs that cannot be offset. This leads to a squeeze on profit margins, which developers must either absorb or pass on to buyers. Adding to this, the compliance burden introduced by GST has made record-keeping and regular filing more complex, increasing administrative costs.
Impact of GST on Homebuyers
With the previous taxes all bundled into one unified GST, homebuyers no longer have to worry about navigating multiple tax slabs. However, it’s important to note that stamp duty and registration charges are not included in GST, meaning these costs still add to the overall expense of purchasing a property.
How to Finance an Under-Construction Property Purchase?
Financing an under-construction property can be done through a home loan, where lenders disburse payments in stages based on construction progress. Borrowers have the option to pay only interest (pre-EMI) until the construction is completed. For those with sufficient savings, self-funding can help avoid loan interest, though it requires careful financial planning to ensure liquidity and avoid cash flow constraints.
GST Rates on Construction and Building Materials
Here are the GST rates applicable to common construction materials:
- Cement: 28%
- Natural sand: 5%
- Pebbles, crushed stones, and gravel: 5%
- Tiles and bricks: 5% to 28%
- Granite and marble: 12% (blocks) and 28% (non-blocks)
- Wallpapers, varnish, and paint: 28%
- Pipe and tube fittings: 18%
Calculating GST on Under-Construction Flats
When calculating GST for under-construction flats, follow these steps:
- Determine the Property Category: Identify whether the property qualifies as affordable housing (1% GST) or non-affordable housing (5% GST).
- Apply the GST Rate: Apply the appropriate GST rate to the total value of the construction or purchase price, excluding the land cost.
- Check Construction Progress: GST on under-construction flats is charged at the time of each payment to the builder, based on the applicable rate and the amount being paid. Since loans for under-construction properties are disbursed in stages as construction progresses, GST is applied proportionally to each disbursement.
Conclusion
The implementation of GST has streamlined tax calculations in the Indian real estate sector. However, challenges remain, particularly the lack of ITC for residential under-construction projects, which can impact pricing. Additionally, homebuyers must account for separate costs such as stamp duty and registration charges, which are not covered under GST.
At SMFG Grihashakti, we offer tailored home loans with attractive interest rates, a flexible tenure of up to 30 years*, and minimal documentation to ease your homebuying journey. Check your eligibility and apply online today!
Frequently Asked Questions on GST on Under-Construction Flats
How is GST calculated on an under-construction property? Explain with an example.
Regarding taxation, under-construction properties are subject to a different calculation for GST compared to completed ones. Let's take the example of an INR 50 lakh under-construction property with a 5% GST rate. This would result in a GST amount of INR 2.5 lakhs. However, there is a provision for input tax credit (ITC), which can reduce the amount by one-third, as it accounts for materials and services used. As a result, the final amount payable for GST becomes INR 1.67 lakhs (calculated as INR 2.5 lakhs minus INR 83,333).
How do you calculate GST on a new flat?
The GST on a new flat is calculated on the sale price at the applicable rate, usually 5%. You can reduce the payable GST by applying the Input Tax Credit (ITC).
How much stamp duty is payable on registration of property?
Stamp duty can vary across states. It can be between 3-7% of a property’s value.
How Do You Calculate GST on a Plot?
According to Schedule III of the CGST Act, the sale of land or plots is exempt from GST as they are considered immovable property. Only if supplementary services or amenities are included in the sale will GST apply to those services rather than the land sale. Land sales for under-construction properties with basic infrastructure are not subject to GST. Therefore, GST is not incurred on the sale of land or plots in most cases.
Is GST calculated on agreement value?
Yes, the GST is calculated on the agreement value, which translates to the total sale consideration mentioned in the buyer-seller agreement.
Is GST calculated on MRP or selling price?
GST is typically calculated on the selling price of goods or services and not on the Maximum Retail Price (MRP).
Is GST calculated on carpet area or built-up area?
For under-construction residential properties, GST is levied based on the carpet area and construction value while excluding the land cost, with rates varying depending on the project specifications and government notifications.
How can I save GST on under-construction property?
To save on your GST, here are some strategies you can consider:
- Buying a property with a completion certificate means it's ready to move and exempt from GST.
- In affordable housing projects, buyers might avoid paying GST if builders reduce prices post-GST.
- Cancelled deals allow recovery of GST paid on under-construction properties.
- Considering alternatives, like resale properties, might help reduce or avoid GST on under-construction properties.
Who will pay the GST, the buyer or the seller?
It is the buyer's responsibility to bear the GST liability.
Can builders charge GST on monthly maintenance?
Yes, builders can charge 18% GST on maintenance charges above INR 7,500 monthly for both residents and RWAs.
Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.