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Buying a home is one of the most significant financial decisions for any Indian household. Understanding how taxes affect property prices is crucial when planning a real estate purchase. The implementation of GST significantly restructured how taxes are calculated on residential and commercial real estate. Previously, home buyers paid multiple service taxes, VAT, and excise. Today, a unified GST applies, but the rates vary heavily depending on the construction status and whether the property falls under the affordable housing scheme. In this article, we explain the GST rules on housing properties.
Under-Construction vs Ready-to-Move-In Properties
The primary rule of real estate GST is simple: GST is only applicable on properties that are under construction. If you buy a ready-to-move-in apartment where the builder has already received the Completion Certificate (CC) from local authorities, no GST is charged. In this case, you only pay stamp duty and registration fees. If the developer is still building the project, GST is applicable.
Current GST Rates on Residential Properties
The government revised real estate rates to boost the housing sector. Under the current regime, there are two primary rates:
- Affordable Housing: 1% GST (without Input Tax Credit).
- Non-Affordable / Luxury Housing: 5% GST (without Input Tax Credit).
What Qualifies as Affordable Housing?
To qualify for the lower 1% GST rate, the housing unit must meet two specific criteria regarding price and size:
- Carpet Area: The carpet area must not exceed 60 square meters in metropolitan areas (Delhi-NCR, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad). For non-metropolitan towns and cities, the limit is 90 square meters.
- Price Cap: The total price charged by the builder must not exceed ₹45 lakh.
If a property exceeds either the size limits or the ₹45 lakh price cap, it falls under the standard housing category and attracts 5% GST.
The Input Tax Credit (ITC) Rule in Real Estate
Under the previous system, builders could claim credit for GST paid on cement, steel, tiles, and contract labor. They were expected to pass this benefit to buyers. However, many failed to do so. Consequently, the GST Council removed ITC benefits for residential developers. In return, the council lowered the rates to 1% and 5% respectively. Developers must purchase at least 80% of their raw materials from registered suppliers, or pay a reverse charge tax on the shortfall. Before buying an under-construction flat, ask the builder for a detailed tax split on your booking amount.