The goods and services tax (GST) has been effective in India since 2017 and although it may seem steep for certain goods or services, the relevant consumer is actually not paying any more than they did earlier through other types of taxes.
The GST replaces various taxes (17 types of taxes to be precise) including value-added tax (VAT) and brings them together under one type of tax. In the real estate sector in India, GST on property is imposed for all types of properties that are under construction (including residential and commercial) other than land, as land is immovable. Taxes are a crucial part of every country’s economy and as a consumer, every citizen must be aware of the forms of taxes and why they are imposed.
India is a vast country with a diverse population that belongs to different social classes. Being highly populated, real estate based on the demand for property investment is always buzzing and the prices of properties are always increasing. GST on property however has been applicable since 2017, the same time that GST itself became effective.
GST rules for properties in India changed after 2019 and the rules formed thereafter are still applicable in 2023.
Ever since the COVID-19 pandemic took a toll on nearly every sector, people were under great financial as well as emotional loss and the GoI did its bit by bringing down interest rates on home loans, creating affordable housing, etc. to encourage people to invest in properties. Affordable housing includes houses that cost under 45 lakhs and have a carpet area of less than 60 sq. m. for metro cities and 90 sq. m. non-metro cities respectively. In any case, GST on property is applicable throughout India and there is no GST on properties that are completed or are ready to move in. GST is also applicable without considering input tax credit (ITC).
For residential properties that come under affordable housing, GST is applicable at 1% of the value of the property. For example, if the cost of an affordable property per sq. ft. is 5000 INR, then the GST on property at 1% would be 50 INR, making the value of the property per sq. ft. to become 5050 INR. Similarly, for non-affordable residential properties, GST is applicable at 5% and is calculated in the same manner.
In the case of commercial properties (such as apartments that come under residential real estate), GST is applicable at 5% where the area of a considered property is less than 15% of the carpet area whereas GST on property that is a standalone commercial property is 12%. If you are constructing your own house, it must be noted that GST is also applicable on raw materials such as cement, sand, tiles, stones, etc. at different percentages.
Cities in India are classified as Tier-1, Tier-2 and Tier-3 cities based on their infrastructural and technological growth and the population count. On one hand, Tier-1 metro cities like Bangalore and Mumbai are the biggest in urban areas and offer a high standard of living to residents but this standard also means that property prices (GST on property also being applicable) here are high and not easily affordable. On the other hand, Tier-2 cities have more potential for growth and a offer a decent standard of living and also offer affordable properties for potential real estate investors.
GSS Projects is a real estate consultant with 25+ years of experience in Mysore real estate and also in Karnataka real estate. Contact us for expert real estate consultancy services and to get the right help in calculating GST on property before property investment.