Have you ever wondered how GST affects your property purchase? Buying property in India comes with several financial aspects to consider, and Goods and Services Tax (GST) plays a crucial role in shaping the overall cost.

For example, recent reforms have introduced a 10 percentage-point reduction in the GST on cement, a primary construction material, from 28% to 18%. This change is expected to reduce developers' input costs by 2–4%, which could help make housing more affordable and boost demand in the real estate sector. 

In this blog, we’ll break down how GST impacts property transactions, including when it applies, applicable rates, exemptions, and how to calculate it.

Key Takeaways:

• GST Application: GST applies to under-construction properties, not to ready-to-move-in or resale properties.

• GST Rates: Affordable housing attracts 1% GST, non-affordable housing is taxed at 5%, and commercial properties are taxed at 12% with ITC.

• Exemptions: Land transactions and properties with OC/CC are exempt from GST.

• GST Calculation: GST is calculated on 67% of the property's value (after excluding 33% for land), with rates applied based on property type.

• Additional Costs: Factor in stamp duty, registration fees, and potential GST on amenities like parking or maintenance charges.

Understanding When GST Applies to Property Purchases

GST is applicable primarily to under-construction properties. However, it does not apply to ready-to-move-in properties or resale properties. Here’s how to determine if GST is applicable:

1. Applicability Criteria

• Under-Construction Properties: GST is applied to under-construction properties, including residential apartments, commercial spaces, and bungalows. This includes properties where the Occupancy Certificate (OC) or Completion Certificate (CC) has not been issued at the time of purchase.

• Ready-to-Move-in Properties: Properties that have received their OC or CC are exempt from GST, as they are considered completed structures. These properties are not subject to GST under the Goods and Services Tax Act of 2017.

• Resale Properties: Resale properties, which have already been occupied or completed, are also exempt from GST since these are not considered a supply of goods or services.

2. Exemptions 

• Land Transactions: If you are purchasing land without any superstructure, GST does not apply. Only stamp duty and registration charges apply.

• Completion/Occupancy Certificate: Once a property receives the OC or CC, GST is not applicable.

• Affordable Housing: Affordable housing, as defined by GST criteria, may attract lower GST rates (1%) when certain conditions are met.

Next, let’s take a deeper look at the different GST rates based on property type.

Knowing the Applicable GST Rates

GST rates on property purchases vary based on whether the property is classified as affordable housing or non-affordable housing. The rates also differ between residential and commercial properties.

1. GST Rates for Residential Properties

• Affordable Housing: Properties costing up to ₹45 lakh, with a carpet area of 60 square metres (in metro cities) or 90 square metres (in non-metro cities), attract a 1% GST rate without the Input Tax Credit (ITC).

• Non-Affordable Housing: Properties exceeding the ₹45 lakh threshold or larger than the specified carpet area are subject to a 5% GST rate, also without ITC.

2. GST Rates for Commercial Properties

• Under-Construction Commercial Properties: The GST rate for under-construction commercial properties is typically 12%, with the possibility of claiming ITC.

Next, let's walk through how to calculate GST on your property purchase by understanding the distinction between land and construction value.

Determining the Taxable Value

When calculating GST on property purchases, it's important to differentiate between the land and construction components, as GST is only applicable to the construction cost. 

1. Applicability Criteria

To understand when GST is applicable, it's important to focus on the nature of the property transaction. Here are the key criteria that determine whether GST will apply:

• Construction Value: GST applies exclusively to the construction portion of the property, which covers the building's physical structure, including materials and labour costs. The land value itself is not subject to GST.

• Land Value Calculation: According to GST guidelines, 33% of the total contract or agreement value is typically attributed to the land component. Since land is exempt from GST, the remaining 67% of the property's value, representing the construction cost, is taxable under GST..

If you're a buyer or investor facing the complexities of GST on property purchases, BCD India’s real estate advisory team can provide expert guidance. Our in-depth knowledge of tax structures can help you make informed, cost-effective decisions throughout your property journey.

Understanding the GST Calculation Formula for Property Purchases in India

Calculating GST on a property purchase involves several steps, ensuring that only the construction portion is taxed while the land value remains exempt. Understanding the method behind this calculation can help you accurately estimate the additional cost associated with GST.

Here’s a clear method to calculate GST on your property purchase:

Stepwise Calculation

1. Base Price: Start with the base price of the property, excluding any GST or extra charges.

2. Deduct Land Value: Subtract 33% from the base price, which represents the land value and is exempt from GST.

3. Apply GST: For under-construction properties, apply 5% GST for non-affordable housing or 1% for affordable housing on the remaining amount. For commercial properties, apply 12% GST with ITC.

4. Add GST on Additional Charges: If the sale includes amenities like parking, clubhouse, or maintenance, add the applicable GST rate (usually 18%).

5. Final Price: Add the GST amount to the base price and other charges to get the total amount payable.

Example Calculation

For a property with a base price of ₹10,00,000:

• Land value (33%): ₹3,30,000 (exempt from GST)

• Construction value (67%): ₹6,70,000

• GST at 5%: ₹33,500 (₹16,750 CGST and ₹16,750 SGST)

Total GST = ₹33,500. The final price will be ₹10,33,500.

Also Read: BHARAT 2030: Tier-II & III Cities Will Shape India's Rs. 10 Lakh Crore Real Estate Future

Other Charges to Account for When Purchasing Property

Apart from GST, buyers must also factor in various other charges that contribute to the total cost of a property purchase. These charges are essential to understand to ensure there are no surprises during the buying process. 

Associated Charges: 

• Stamp Duty: Stamp duty is charged by the state government based on the market value of the property and is separate from GST. The rate varies by state.

• Registration Charges: Registration fees are also state-specific and are applied to the sale value of the property.

• Maintenance and Amenities: Charges for amenities such as parking, clubhouse, and maintenance services may attract GST at 18%.

Maintenance Charges GST: 

• Threshold for GST on Maintenance: If the monthly maintenance fee exceeds ₹7,500 per member, GST at 18% will apply.

Also Read: Claiming Tax Benefit on Stamp Duty and Registration Charges for Second Home

Input Tax Credit (ITC) Provisions

ITC allows developers to claim credit for the tax paid on construction materials and services, but it is important to understand how this applies to residential and commercial properties.

1. Applicability Criteria for ITC

• Residential Properties: Buyers cannot claim ITC for GST paid on residential property purchases.

• Commercial Properties: Developers of commercial properties may claim ITC on construction costs if the property is meant for rental or leasing purposes.

2. Exemptions 

• Affordable Housing: For affordable housing, ITC is not available, even though it attracts a reduced GST rate (1%).

• Land Transactions: No ITC is available for land purchases.

Impact of GST on Overall Cost of a Property in India

GST significantly impacts the overall cost of a property. Understanding the applicable rates and exemptions is crucial in calculating the final cost. Buyers should factor in GST as part of their budget planning to avoid surprises.

Associated Charges

• Stamp Duty and Registration: While GST is an important tax factor, stamp duty and registration fees should also be considered. These can add a significant amount to the total cost, depending on the property’s value and location.

• GST on Amenities: Additional charges for amenities may attract GST, further increasing the cost of the property.

Now that we’ve covered the details of GST application and calculation, let’s explore the key benefits of GST for property buyers in India.

Benefits of GST for Property Buyers in India

The introduction of Goods and Services Tax (GST) has significantly impacted the Indian real estate sector, offering a range of benefits to property buyers. 

Beyond simplifying the tax system, recent reforms have introduced measures that make property transactions more transparent and affordable. 

Below are some of the key advantages of GST for buyers:

1. Standardised Tax Structure Across India

Before GST, property buyers had to go through a complex array of state-specific taxes like VAT, service tax, and excise duties. 

GST has replaced this with a unified tax structure, ensuring consistent tax rates nationwide, which helps buyers avoid confusion and ensures more predictable property pricing.

Example: A buyer purchasing an apartment in Mumbai faced different tax rates than someone buying in Bengaluru. With GST, both buyers pay the same unified tax rate, making property pricing predictable.

2. GST Exemption on Ready-to-Move-in and Resale Properties

One of the most attractive features for buyers is the exemption from GST on ready-to-move-in properties and resale homes. 

This exemption reduces the overall tax burden, making these properties a more cost-effective option for those seeking immediate possession.

Example: If a buyer purchases a 2 BHK resale apartment in Pune for ₹50 lakh, they save up to ₹5 lakh (10% typical GST rate on under-construction properties), making the purchase more affordable.

3. Lower Construction Costs Due to GST Rate Cuts

GST reductions on key construction materials like cement and steel have led to a decrease in developers' input costs by 3–5%. These savings are often passed on to buyers, which can help lower the final price of under-construction properties.

Example: A developer constructing a housing project in Hyderabad saves on material costs, enabling them to offer a 3–4% lower price per square foot compared to pre-GST pricing.

4. Simplified Tax Compliance for Developers

GST has streamlined the tax compliance process for developers by consolidating multiple taxes into one system. This simplification helps developers manage their costs and ensures timely project completion, ultimately benefiting buyers with more predictable delivery dates.

Example: A developer in Chennai no longer has to manage VAT, service tax, and excise separately, which allows them to finish a project on schedule, benefiting buyers with timely possession.

5. Increased Transparency in Property Transactions

The GST system mandates detailed invoicing, offering buyers a clear breakdown of taxes paid on their property purchase. This enhanced transparency helps buyers understand the true cost of the property and builds trust in transactions.

Example: A buyer purchasing a new flat in Gurgaon receives an invoice showing how much tax goes into construction materials versus services, giving them confidence in the purchase.

6. Boost to Affordable Housing Initiatives

The 1% GST rate on affordable housing has significantly reduced the financial burden for first-time homebuyers. This is aligned with government schemes such as the Pradhan Mantri Awas Yojana (PMAY), making housing more accessible to low- and middle-income groups.

Example: A first-time buyer purchasing a ₹25 lakh home under PMAY pays only ₹25,000 in GST instead of ₹2.5 lakh, making home ownership more attainable.

Also Read: Impact of GST on Real Estate Sector in India

Conclusion

Understanding GST on property purchases is helpful for managing costs. To make informed decisions, check if the property is under construction or ready-to-move-in, as this affects GST applicability. 

Take advantage of exemptions for resale properties and land transactions, and plan for additional charges like stamp duty, registration fees, and GST on amenities. These strategies will help you avoid unexpected costs and make smarter investment choices.

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FAQs

Q: Does GST apply to under-construction properties in rural areas?
A: Yes, GST applies to under-construction properties in both urban and rural areas. The tax is based on the property's construction value, not its location, with the applicable rates for affordable or non-affordable housing depending on the price and size.

Q: What happens if a builder doesn’t pass on GST savings to the buyer?
A: If a builder does not pass on the GST savings, buyers may find that the overall property cost remains higher. However, buyers can raise concerns with the builder or consider other properties where cost reductions are more transparent.

Q: How is GST on maintenance charges calculated for an apartment?
A: Maintenance charges are subject to GST if they exceed ₹7,500 per month per member. GST at 18% applies to the entire maintenance amount if the society’s total annual turnover exceeds ₹20 lakh.

Q: Can GST be levied on a property transaction that’s entirely paid for in advance?
A: Yes, GST can still apply if the property is under construction and the payment is made before the issuance of the Completion Certificate (CC) or Occupancy Certificate (OC), even if paid in full in advance.

Q: Does GST impact property registration fees?
A: No, GST does not apply to property registration fees, as these fees are governed by state-specific regulations. Registration charges are separate from GST and must be paid in addition to the purchase price.