How to Calculate GST on Under-Construction Flats?
Jan 03, 2024
Purchasing a home represents independence, stability, and achievement. For many, it is a milestone moment and a significant financial investment. Besides being an expensive buy, a home has considerable long-term economic consequences. When seeking financial aid, one must consider many expenses, such as loan EMIs, insurance, maintenance, and taxes. There are various tax categories to consider when purchasing a home, including property tax, mortgage tax, transfer tax, GST, and so on.
The Goods and Services Tax, or GST, is an indirect tax applied to the provision of products and services in India. Since 2017, the GST has replaced several indirect taxes previously imposed at the central and state levels.
The GST attempts to unify India's tax structure, simplifying the taxation process for homebuyers and developers. GST holds particular relevance, especially concerning under-construction properties. Both homebuyers and the real estate market need to grasp the full cost implications of GST for under-construction flats.
GST on Under-Construction Properties
- Buyers pay 12% for properties, with a 6% deduction for land transfer value.
- GST Council's 33rd Amendment reduced under-construction property tax from 12% to 5%.
- For affordable homes up to INR 45 lakhs, a reduced tax rate of 1% is now applicable. However, this tax relief is available for properties that are not qualified for the Input Tax Credit (ITC).
- Affordable housing properties meeting the criteria of INR 45 lakhs cost cap have distinct area requirements. In metros, under-construction apartments over 60 sq. m qualify for the 1% GST rate; non-metros require 90 sq. m.
- You can simplify under-construction flat purchase calculations using online GST calculators for accurate assessments.
Impact of GST on Under-Construction Properties
After implementing GST in 2017, purchasing under-construction properties underwent a significant change, making it much easier for individuals. By unifying the various taxes, the new tax system provided transparency in tax calculations for home buyers, simplifying the entire procedure and eliminating financial hassles. The government's rationalisation of the GST rates on under-construction property has substantially increased investment in real estate.
Analysis of the impact of GST on property prices
The introduction of GST undeniably impacts India's real estate industry, including affordable housing, luxury properties, under-construction properties, and registration charges. Thanks to the new tax structure, the affordable housing segment now enjoys a minor 1% tax rate, greatly benefiting prospective buyers.
Meanwhile, luxury property owners will also benefit from a reduced 5% tax rate, resulting in significant savings.
In light of the recent decrease in demand for under-construction properties, the government has responded by implementing lower GST rates, ultimately providing tax relief for buyers making interest payments. Nonetheless, the registration and stamp duty charges, typically set at 1% and 5-10%, respectively, remain unaffected by the revised GST rates.
Read More: GST Rate on Real Estate, Flat Purchase in India
Discussion on the impact of GST on developers
Earlier, developers had to deal with VAT, entry taxes, excise duty, and service taxes on architect fees and legal charges. As some of these taxes didn't allow Input Tax Credit (ITC), prices increased, affecting buyers. The GST reduced the construction costs of under-construction flats by consolidating multiple taxes, but it also allowed for input tax credits. However, this implementation has raised concerns about transparency as developers must calculate ITC for buyers, causing them to delay their purchases. Fortunately, input credits are meticulously recorded under GST, eliminating any hidden expenses from being added to accounting records.
Impact of GST on home buyers
Previously, buyers had to contend with many taxes when purchasing properties still under construction, such as VAT, service tax, registration charges, and stamp duty. These taxes varied by state, creating a cumbersome burden for buyers as some tax credits were unavailable. Under the new GST system, a uniform 12% tax rate is imposed on under-construction flats, providing relief for buyers.
Moreover, completed properties are exempt from this tax, resulting in potential price reductions. However, buyers may initially take a cautious approach to assessing the impact of GST on property prices. The long-term benefits depend on developers passing on the cost savings from input tax credits to buyers, ultimately leading to a win-win situation.
How to Finance Under-Construction Property Purchase?
If you're seeking an under-construction property, look no further than SMFG Grihashakti for a comprehensive home loan solution. We offer higher loan amounts at competitive interest ratesfor individuals with a strong credit history. Our flexible repayment plans allow for a lengthy 30-year tenure for added ease and convenience. If you're financially capable, consider considering a shorter tenure and making prepayments to save on the overall cost of borrowing.
GST Rates on Construction and Building Materials
Under Construction Property GST Rates:
- Standard GST rate for under-construction property: 18%
- GST rates for different segments:
- Affordable housing: 1%
- Other segments: 5%
GST Rates on Construction Materials:
- Cement: 12%
- Sand used for construction: 5%
- Pebbles, crushed stones, and gravel: 5%
- Building bricks: 5%
- Tiles and ceramic goods: 18%
- Marble: 12%
- Granite: 28%
- Interiors (wallpapers, electrical appliances): 28%
- Pipe and tube fittings: 18%
Calculating GST on Under-Construction Flats
When determining the GST for under-construction flats, one must consider the property's construction status and apply the appropriate Goods and Services Tax. As per GST regulations, homebuyers must pay a tax based on the construction value, with rates generally ranging from 5% for affordable housing to 12% for other properties. This tax is then calculated using the project completion percentage at purchase.
This means that homebuyers will pay GST in proportion to the construction progress when they pay the builder or developer. It is essential to consider the percentage of work completed on the property at the time of payment when determining the GST for under-construction flats.
Step-by-Step guide to calculating GST
To accurately determine the type of transaction, it is essential to first establish whether it is an intrastate or interstate exchange of goods and services. Keep in mind that the GST rates may differ depending on this classification.
Step 1: Gather all necessary information about the transaction, such as the value of goods or services provided and any applicable discounts or extra charges.
Step 2: dentify the appropriate GST rate for the specific goods or services. Remember that these rates vary among different categories, and 5%, 12%, 18%, or 28% could fall under the exempt or nil category.
Step 3: Find the applicable GST rate, and then use the formula:
GST Amount = (Value of Goods or Services x GST Rate) ÷ 100
For example, if the total value of goods or services is INR 100 and the GST rate is 18%, the GST amount would be equal to INR 100 x (18 ÷ 100) = INR 18.
This simple calculation method applies to all scenarios where GST is involved.
Step 4: Remember to factor in the GST rate when calculating the final cost of goods or services.
Step 5: To determine the total amount payable by the buyer, add the calculated GST amount to the value of goods or services. Businesses can claim Input Tax Credit (ITC) if they've paid GST on purchases.
Step 6: Simply subtract the total GST paid on purchases from the total GST collected on sales, and you'll get the net amount due to the government.
To simplify this process, keeping accurate records of all transactions, such as invoices, GST paid, and GST collected, is important. This will help ensure compliance and streamline the filing of GST returns.
Conclusion
When it comes to buying under-construction flats, understanding the GST's nitty-gritty helps prospective buyers understand their tax responsibilities. By utilising a systematic approach and recognising the benefits of input tax credits, stakeholders can effectively simplify the calculation process and maintain compliance with industry standards.
Stay ahead of the curve by staying informed about evolving GST regulations, and when needed, seek professional advice. Make every step towards homeownership count—apply for an SMFG Grihashakti Home Construction Loan today. Let us be your guide, ensuring that your path to constructing your dream home is not just smooth but also financially sound.
FAQ's
How Is GST Calculated on an Under-Construction Property 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 Rs. 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.