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When you’re buying a flat, it’s important to understand the Goods and Services Tax (GST). Such a tax will directly affect the cost of acquisition. But as the system of taxation aims to standardize property transactions, it can be tough to navigate the specifics of GST. You further have to comprehend the various exemptions and the role of buyers and developers in the tax process. So, in this article, we shall cover more about GST on the purchase of residential property.
In simple terms, investors pay Goods and Services Tax (GST) while purchasing under-construction properties. But, before the tax was introduced in 2017, the homebuyers had to pay VAT, stamp duty, and more. On the contrary, it’s not required to pay GST on ‘ready for sale’ houses. The tax is also not paid if you have the legal completion certificate.
If you’re wondering about why GST was introduced, then it was just to promote transparency. In the past, buyers had to pay Value Added Tax (VAT), stamp duty, and more. But, when the government introduced GST, it signified a consolidated tax structure. Such a kind of transparency made it easy for individuals to buy a residence. They also found it easier to calculate real estate tax liabilities.
Before we move ahead with the GST implications for luxury housing and affordable housing, let’s check the segments in brief.
Under the segment of affordable housing, people consider flats that have the selling price below Rs. 45,00,000. But, under the luxury housing segment, people consider flats with a price more than Rs. 50,00,00. Let’s now look at the GST implications.
If the property or house falls under affordable housing, then the residential property GST rate is 1% without ITC. This shows the support for the affordable housing segment and the “Housing for All” initiative. But, to qualify for this tax rate, the carpet area of the house must be up to 60 sq. m. Besides, the property’s price must be not more than Rs. 45,00,000.
Now, for houses falling under the luxury housing category, the GST rate is equivalent to 5% of the property’s value. You will also not gain the benefit of input tax credit (ITC). This real estate tax rate is applicable only for properties that are under construction. It should also be noted that GST is not imposed on ready-to-move-in houses or the ones that the team has constructed.
In case you aren’t considering purchasing a ready-to move-in flat, then you don’t have to pay GST. Likewise, there’s no GST levied when a plot of land is purchased. But, if you’re buying a house for the first time, then you must get in touch with a tax consultant. While he will guide you, he will offer insights regarding the registration charges and GST.
If the construction team is yet to build the residential property completely, then GST is applicable. The rate is also applicable for new houses. However, GST will not be imposed on ready-to-move-in houses or while buying land. As far as the rate for residential properties is concerned, it will depend on many factors. These include property types, its value, and the construction phase. Input Tax Credit is also one of the components that’s crucial for GST. Way ahead, you can claim ITC once you present the essential documents. The documents will also have to include the tax invoice.
Now, as the GST rate for homebuyers has been revised, it has led to an increase in the demand for under-construction properties. You will observe such a trend in the affordable housing segment. But, the tax rate has no effect on registration fees and stamp duty even when they have been revised.
Besides the initial purchase, buyers also have to consider GST on charges related to maintenance. A tax rate of 18% is applicable if the associated charges are above Rs. 7500 per month. The annual turnover also has to be Rs. 20,00,000 or more. But, the society can claim ITC if there’s a need to pay the GST. As a result, the maintenance costs for the society members are reduced.
Now, as you already know, the GST rate is 5% for properties undergoing construction. This rate is without any input tax credit. This thereby implies that the person who is planning to buy a house has to pay GST at the rate of 5%.
Now, let’s assume that the property’s price is Rs. 50,000,000. Then the GST amount will be equal to Rs. 50,00,000 multiplied by 5%. This is nothing but Rs. 2,50,000. To get the property’s final price, you have to add the GST value to the actual price of the property. Thus, the final price will be equivalent to Rs. 52,50,000.
In India, it’s crucial to comply with GST for property transactions. So, let’s check out the documents required for compliance.
GST Registration Certificate
This certificate states the seller’s GST registration details. It is necessary to present this certificate for collecting and remitting GST.
Sales / Lease Agreement
Such a document presents the terms of a lease or sale. Apart from the property details, it states the details of parties as well. In addition, it must also clearly state that GST for homebuyers is applicable on the transaction.
Invoicing Documents
For the sale of the property, a well presented tax invoice is issued. It also presents the GST amount that is charged along with the actual price of the property. However, you must confirm whether the invoice complies with the GST rules.
Proof of Identity
Copies of the PAN card and Aadhar Card of both the buyer and seller also need to be shown for GST compliance.
Property Documents
Besides the title deed, the encumbrance certificate also has to be shown. While the title deed presents the proof of ownership, the encumbrance certificate shows that there aren’t any legal liabilities.
Tax Deduction & Collection Account Number (TDS/TCS)
If applicable, you must also present the details of TDS deducted under Section 194-IA. This is valuable for the purchase of property. You have to provide this document only when the property transaction crosses a certain limit.
Bank Statements
Proof of the payment made for the transaction also needs to be obtained. Copies of the transaction receipts or bank statements fall under this category. Once someone goes through the documents, he can verify if the funds have been transferred.
NOC from the Society
A No Objection Certificate (NOC) from the society has to be obtained for selling the property. This is valuable, especially when you have purchased a property in a co-operative housing society.
In conclusion, individuals had to bear a heavy tax before the introduction of GST on the purchase of residential property. People had to bear the tax load because of stamp duty, service tax, and VAT. This led to an increase in the property’s value. The process also seemed complicated when homebuyers had to pay the taxes separately. But, with GST, the tax system is drastically streamlined.
Consider checking out the projects by Goodbrick Realty if you wish to live in the lap of luxury. While we blend comfort and functionality to develop houses, our values of design thinking certainly enhance the living experiences for individuals.
