GST On Property in India – Basics of GST on Real Estate post April 2019

As of the 1st of April 2019, there are new rules for GST on residential property. The rules of GST on Real Estate has reduce the amount of tax that was earlier charged, and are overall in favour of home buyers, especially those looking to buy affordable housing.

What are the new GST rates on Property or GST on Real Estate?

They have separated GST for houses into 2 categories – premium or non-affordable housing projects and affordable housing projects.

For premium projects the GST has been slashed from 12% to 5% with ITC and for the affordable sectors prices have been slashed from 12% to 1% without ITC.  ITC or Input Tax Credit is when you reduce the tax on your output by deducting the tax that you have paid on all your inputs(raw materials), you will only have to pay the balance amount.

What’s the difference between premium/non-affordable housing projects and affordable housing projects?

Affordable housing is any flat costing up to Rs 45 lakhs and measuring 60 sq meters (645.835 sq ft.) carpet area in metro cities, i.e. Delhi-NCR, Bengaluru, Chennai, Hyderabad, Mumbai-MMR and Kolkata. For non -metro cities the limit is slightly higher at 90 sq metres (968.752 sq ft.) carpet area.

This means that an affordable house in metros can be at least a 2 bedroom now and in the non-metros a 3 bedroom. This will help a family to live more comfortably.

Premium projects are those that exceed the carpet area limit and are above Rs.45 in both metros and non-metro cities.

Why was GST on Property move made?

The idea behind slashing the GST on Property from 12% was to encourage the neo-middle class to buy houses. This was also done so that the Housing for All Mission could grow to its full potential.

What it means for home builders i.e. GST for Builders

Now, if you’re a builder and you’re wondering what to do, don’t worry, you have the gift of choice. If the property is already under construction, then you can choose between the old or new tax rates.

This choice is given to those builders whose projects are not completed by the 31st of March 2019. They can make this choice to avoid confusion with the input tax credit (ITC) issues.

This also means that as a builder you will have to buy a large percentage of raw materials (80%) from GST registered suppliers.

Possible Issues 

For builders, buying a large portion i.e. 80% of raw materials from GST registered suppliers might not be possible. India has a very large and unorganized sector that contribute materials to the real estate sector. Getting them to register under GST and getting them to do this quickly seems almost impossible. This is most true for the tire 2 and tire 3 cities where raw materials come from very small contributors.