The Goods and Services Tax (GST), introduced in 2017, has drastically altered the real estate landscape in India. While it replaced multiple indirect taxes like service tax, VAT, and others, it has also created a simplified framework for property transactions. However, one area that still raises questions for homebuyers is GST on under-construction property. Many buyers are unsure about the exact calculation, applicability, and potential ways to reduce their tax burden.
This in-depth blog will systematically cover every detail of GST on under-construction property, including its calculation, exemptions, rates, and examples. We will also look at GST implications in states like Maharashtra and cities like Mumbai. Finally, we will address common queries in a comprehensive FAQ section.
What is GST on Under-Construction Property?
Before we dive into numbers, it’s important to understand the definition of under-construction property. An under-construction property is one where the construction is ongoing and the builder is yet to provide the completion certificate.
According to GST rules, ready-to-move-in properties with a completion certificate are not subject to GST, while under-construction properties attract GST at a prescribed rate.
Also Read:- Which Property Investment is Best, Under-Construction or Ready Possession
What are the Current GST Rates on Under-Construction Residential Property?
As per the revised structure effective from April 2019, the following GST rates apply to under-construction properties:
- Affordable housing projects: 1% GST without Input Tax Credit (ITC).
- Other residential projects: 5% GST without ITC.
The government introduced this simplified rate structure to reduce confusion and make housing more affordable for buyers.
How to Calculate GST on Under-Construction Property?
The calculation of GST is one of the most frequently asked questions. Let’s break it down step by step.
Formula:
Property Value × Applicable GST Rate = GST Amount
Example 1: Affordable Housing
Suppose you buy a flat worth ₹40 lakhs under the affordable housing scheme. The GST applicable is 1%.
- Calculation: ₹40,00,000 × 1% = ₹40,000.
Thus, you pay ₹40,000 as GST in addition to the property cost.
Example 2: Non-Affordable Housing
If the property value is ₹80 lakhs in a standard residential project, the GST applicable is 5%.
- Calculation: ₹80,00,000 × 5% = ₹4,00,000.
So, the GST payable on this property will be ₹4 lakhs.
This simplified method helps buyers get clarity on their financial planning.
Is GST Applicable on Ready-to-Move-in Properties?
No. GST is only applicable to properties under construction. If a completion certificate is issued before purchase, the property is exempt from GST. However, stamp duty and registration charges are still payable in all cases.
What is the Impact of GST on Under-Construction Residential Property?
The implementation of GST has both pros and cons.
- Advantages: It replaced multiple indirect taxes, making the taxation structure more transparent. Rates were also rationalized to 1% and 5%, making home-buying slightly easier.
- Disadvantages: Removal of ITC has increased the cost for developers, which may indirectly affect buyers through increased base prices.
How Does GST Differ Across States Like Maharashtra?
Let’s focus on GST on under-construction property in Maharashtra.
The central rules of GST are uniform across India. However, since Maharashtra is one of the largest real estate markets in the country, buyers here face higher absolute tax amounts due to elevated property prices. For instance, in cities like Mumbai, where property rates are among the highest in India, GST amounts can run into several lakhs.
What is GST on Under-Construction Property in Mumbai?
Mumbai’s real estate is one of the costliest in the world. A flat worth ₹2 crores in Mumbai will attract 5% GST if not classified under affordable housing.
- Calculation: ₹2,00,00,000 × 5% = ₹10,00,000.
So, the buyer must pay ₹10 lakhs in GST apart from the stamp duty and registration charges.
This example highlights the significant impact of GST on under-construction property in Mumbai, especially for mid- to high-segment buyers.
How to Avoid GST on Flat Purchase?
This is another common question. Technically, GST cannot be avoided if you are buying an under-construction property. However, there are two ways to reduce or eliminate it:
- Buy a ready-to-move-in property: No GST is applicable once the completion certificate is issued.
- Book under affordable housing schemes: The GST rate here is just 1%, significantly lower than the standard 5%.
How Has GST Changed the Homebuying Landscape?
The introduction of GST simplified tax compliance for both buyers and builders. Earlier, buyers had to pay service tax, VAT, and other charges separately. Now, a single GST rate applies, creating uniformity across the country. However, the removal of Input Tax Credit has been a drawback for developers and has shifted some burden back to buyers indirectly.
GST and Its Impact on Developers
Developers face challenges due to the removal of ITC. While buyers benefit from lower upfront GST rates, developers can no longer claim credits on construction materials and services. This increases their cost base, which is often adjusted by increasing property prices.
GST vs. Stamp Duty and Registration Charges
One of the biggest misconceptions among buyers is that GST replaces stamp duty and registration. This is not true. Stamp duty and registration charges are state-level taxes and are still applicable even after paying GST on under-construction property.
Future of GST on Real Estate
The government periodically reviews GST to ensure affordability and transparency. There is speculation that ITC may be reintroduced in the future, or rates may be further rationalized. For now, the simplified 1% and 5% structure is expected to continue.
Conclusion
Understanding GST on under-construction property is crucial for making informed homebuying decisions. While GST has simplified the tax structure, it still impacts buyers significantly, especially in expensive markets like Mumbai and Maharashtra. If you are wondering how to avoid GST on flat purchase, the only practical solution is to buy a ready-to-move-in property or opt for affordable housing projects at a 1% GST rate.
At Housiey, we believe in making homebuying transparent and hassle-free by connecting you directly with developers, without broker interference.
If you found this guide useful, don’t miss our detailed blog on How to Download GST Certificate, which will help you navigate compliance aspects with ease.
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