Understanding Real Estate Tax : Latest GST Rate on Flat Purchase 2023

As a real estate agent in India, it's important to understand the Goods and Services Tax (GST) implications for home buyers. When purchasing under-construction properties like flats, apartments, and bungalows, buyers are required to pay GST at a rate of 1% for affordable housing and 5% for non-affordable housing.
This applies to properties that fall outside the specified price bracket and carpet area for affordable housing. Additionally, GST is also applicable on the purchase of developable plots. Stay informed and assist your clients with their GST-related queries in the real estate market.

What are Real Estate Property Taxes?

Local governments impose real estate property taxes on property owners, which contribute to funding various public services, including schools, infrastructure development, and public safety. Local governments typically calculate the amount of tax owed based on the assessed value of the property.

GST on Flat Purchase 2023

In India, when purchasing flats and apartments in under-construction developments in mega cities in 2023, buyers will be required to pay Goods and Services Tax (GST). However, it's worth mentioning that this GST does not apply to buying apartments in completing developments.
A completed project is defined as one that has received a certificate of completion from the appropriate authorities. Additionally, when it comes to commercial property purchases, it's important to consider real estate taxes as well. These taxes may vary depending on the specific jurisdiction and regulations in place.

Property type	GST rate till March 2019	GST rate since April 2019
Affordable housing*	8% with ITC	1% without ITC
Non-affordable housing	12% with ITC	5% without ITC

Implementation Of Taxes before GST

Prior to the introduction of a unified Goods and Services Tax (GST) in 2017, buildings in various stages of construction during a housing project were subject to multiple state and central taxes. Some of the taxes that real estate developers had to pay before the GST came into force included:

• Value Added Tax (VAT)
• Central Excise
• Entry Tax
• LBT
• Octroi
• Service Tax etc.

After GST implementation

In 2023, the GST will apply to buyers of under-construction flats, apartments, and bungalows in India's megacities. These buyers will be required to pay GST, with the rate being 1% for affordable housing and 5% for non-affordable housing. It is important to note that the GST does not apply to the purchase of apartments in completing developments. Furthermore, a finished project, which has received a certificate of completion from the appropriate authorities, is exempt from GST.

Listed below are the types of real estate tax (central and state taxes) that the GST subsumed when it became operational in July 2017: 

Central taxes

1. Excise Duty
2. Customs Duty
3. Special Additional Duty of Customs
4. Service Tax
5. Central Sales Tax
6. Central surcharge and cess on supply of goods and services

 

State taxes

1. State Value Added Tax
2. Entertainment Tax
3. Luxury Tax
4. State Excise Duty
5. State surcharge and cess on supply of goods and services
6. Taxes on advertisement
7. Purchase tax
8. Taxes on lotteries, gambling and betting

What is affordable housing under GST?

As per the government-defined criteria, affordable housing is determined by both the cost and size of the housing unit. In metropolitan cities like Delhi-National Capital Region, Bengaluru, Chennai, Hyderabad, Mumbai-Mumbai Metropolitan Region, and Kolkata, a housing unit with a real estate property value of up to Rs 45 lakh and a carpet area of up to 60 sqmt qualifies as affordable housing. In other cities across India, excluding the aforementioned metropolitan cities, a housing unit is considered affordable if it costs up to Rs 45 lakh and has a carpet area of up to 90 sqmt.

What is input tax credit (ITC) under GST?

The ITC system in the GST law sets it apart from the previous tax system in India, offering a unique characteristic. Throughout the entire span of a housing project, a real estate developer pays tax multiple times for the purchase of goods and services. However, under the GST regime, the builder becomes eligible to claim input tax credit when they pay their output tax.
For example, consider a scenario where a developer needs to pay Rs 25,000 as tax on the final product. Prior to this, the builder has already paid Rs 21,000 as input tax while procuring materials such as steel, cement, paint, etc. In this case, after adjusting the input tax credit, the builder would only be required to pay Rs 4,000 as output tax.


Under the new regime, the government has specified that mega housing projects initiated by the government for the common man will be subject to a mere 1% GST. Real estate tax and GST on home purchases in these housing schemes, which encompass initiatives like the Jawaharlal Nehru National Urban Renewal Mission, the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana, and state government housing schemes, will be limited to this 1% rate.

GST on construction services

The GST regime in India does not directly encompass real estate. However, it imposes taxes on various activities and services within the construction sector. Under the GST regime, the following are the tax rates applicable to associated activities in the construction sector:

Under-construction home bought under the PMAY Credit-Linked Subsidy Scheme (CLSS)	8%
Under-construction home bought without the subsidy	12%
Works contract for affordable housing	12%

GST rate of construction and building materials

Real estate in India is encompassed by GST through the taxation of works contracts and building and construction activities. The implementation of the new regime includes the Indian construction industry, which incurs substantial taxes due to the levies imposed on the purchase of diverse building construction materials. This indicates the application of real estate tax and the influence of GST in 2023.

GST on maintenance charges for housing societies

GST on the purchase of a flat refers to the Goods and Services Tax applicable to the acquisition of residential properties. The specific rate of GST depends on the type and value of the flat, whether it is under construction or ready to occupy, and other relevant factors.
Real estate tax, on the other hand, generally pertains to the levies imposed by local governments on property owners. These taxes contribute to funding public services such as schools, infrastructure development, and public safety. The amount of tax owed is typically calculated based on the assessed value of the property.

Therefore, when purchasing a flat, buyers need to consider both the GST applicable to the transaction and any potential real estate taxes that may be levied by the local government.

GST on rent

When is the tenant liable to pay GST

Tenants who are registered for GST and lease a residential unit are liable to pay 18% tax on the rent amount as per the real estate tax regulations. The GST Council announced this amendment on July 13, 2022, which requires GST registration for individuals earning more than Rs 20 lakh per year and businesses making more than Rs 40 lakh annually.Under the GST regime, renting residential property for business purposes is considered a supply of services. Landlords are required to pay 18% GST on the rental income from such properties if the annual rent amount exceeds Rs 20 lakh, in accordance with real estate tax rules. Landlords must register themselves and fulfill their obligation to pay the applicable GST on their rental income. Additionally, commercial properties that are rented out are also subject to an 18% GST as per real estate tax regulations.

GST on home loan

Under the GST regime, renting, residential property for business purposes is considered a supply of services. Landlords are required to pay 18% GST on the rental income from such properties if the annual rent amount exceeds Rs 20 lakh, in accordance with real estate tax rules.
Landlords must register themselves and fulfill their obligation to pay the applicable GST on their rental income. Additionally, commercial properties that are rented out are also subject to an 18% GST as per real estate tax regulations.

GST is not applicable on ready-to-move-in flats; it is applicable on under-construction flats only

It is important to note that the GST does not cover the real estate sector under its ambit. The tax authorities charge the applicable tax rate on a property, building under the category of 'work contracts'. As a result, developers cannot impose GST on the sale of ready-to-move-in homes. Once a property is completed and obtains the occupancy certificate, it falls under the ready-to-move-in category and is exempted from work contracts.

In short, the GST is applicable only to the sale of under-construction properties that have not yet received occupancy certificates. It is worth mentioning that in the previous regime, buyers were also responsible for paying real Estate property tax on the purchase of ready-to-move homes.

However, since the developer or owner has already paid GST as part of the purchase, they eventually include this expense as part of the overall cost of the property. This means that even though there is no direct GST applicable on ready homes, the buyer ultimately bears the cost indirectly.

GST on a one-time maintenance deposit collected by builders 

When purchasing commercial properties in India, buyers must consider the implications of the Goods and Services Tax (GST). The GST regime requires buyers to pay the applicable GST rate on the purchase price of the commercial property. The GST rate may vary based on factors such as the nature and location of the property.

Buyers should factor in the GST amount when budgeting for a commercial property purchase and ensure compliance with GST regulations. Consulting professionals can help them understand the specific GST implications of their commercial property transaction.

GST is not applicable to land transactions

The GST on construction services does not apply to the sale of land, as it does not involve the transfer of goods or services. In taxable real estate transactions, the cost of land is considered in determining property prices, and a standard abatement of 33% of the total contract value is provided towards the value of land.

Rate of GST on developable land

A circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on August 3, 2022, and a recent order by the Karnataka AAR have established that no GST will be applicable on the sale of developable plots, irrespective of the value of the real estate property or any basic infrastructure development.

Earlier, some state authorities held a contrary view. For example, in July 2022, the Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) ruled that the sale of land after undergoing development activity would attract an 18% Goods and Services Tax (GST). The Gujarat Authority of Advance Ruling also issued a similar ruling in 2021.

Selling immovable properties was excluded from the purview of value-added tax. Thus, only direct taxes like stamp duty and registration charges were paid during such transactions.

GST impact of stamp duty and registration charges

The government has not taken any action to discontinue stamp duty and registration charges on the property, despite the ongoing demands. As a result, property transactions in India still attract stamp duty and registration charges. The states levy stamp duty in the range of 5%-10%, while the registration charge is either 1% of the property value or a standard fee. These charges form part of the real estate tax system and are essential for property transactions.

GST on flat purchase and registration

While there is no GST on property registration charges, experts do not anticipate GST subsuming stamp duty and registration charges in the future. The revenue earned by states through stamp duty is significant, and letting go of this income would result in substantial losses for the exchequer. Therefore, the possibility of GST replacing these charges is considered unlikely in the foreseeable future, according to lawyer Prabhansu Mishra.

Refund: GST on flat purchase cancellation

The GST law is likely to undergo changes that will enable home buyers to claim a refund of GST if they cancel a home purchase for which they have already paid the tax. Currently, the new tax regime does not have a procedure that allows unregistered entities, including home buyers, to claim GST refunds. In the 48th GST Council meeting held on December 17, 2022, the Council recommended amending the CGST Rules, 2017, and issuing a circular to establish the procedure for unregistered buyers to file refund applications in such cases.

CONCLUSION

In the Indian real estate market, understanding the implications of Goods and Services Tax (GST) is crucial for home buyers. Under-construction properties like flats, apartments, and bungalows are subject to GST at a rate of 1% for affordable housing and 5% for non-affordable housing. Real estate taxes, including GST, have undergone changes and updates. Buyers should also be aware of the potential refund options for cancelled home purchases. Stay informed and assist clients with their real estate tax queries to navigate the market effectively.