Easy Explainer How Does GST Apply to Different Kinds of Real Estate Transactions

By Lodha

Whether you are a first-time homebuyer or an investor buying property after years of experience, it is important to know about the taxation aspect of real estate transactions. One of the taxes levied on real estate purchases is GST. GST, also known as the Goods and Services Tax, is an indirect tax that came into force in July 2017. Prior to the implementation of GST, Indian citizens were subject to a host of indirect taxes such as excise duty, Value-Added Tax (VAT), service tax, etc. As the name suggests, GST is levied on the supply of goods and services and is a comprehensive law with a clear destination after each value addition. Since real estate transactions include the supply of goods and services, they are subject to GST laws. Here is a breakup of GST applicable to different facets of a real estate transaction:

Under-Construction vs Ready-to-Move Properties:

GST in India varies depending on whether you are investing in an under-construction property or a ready-to-move unit. In India, GST applies only to under-construction properties and not to ready-to-move apartments or homes. The exemption of ready-to-move property from GST can encourage first-time homebuyers and low-income sections of society to purchase homes without taking on the added expenses of paying taxes.

Affordable Housing:

A recurring theme when it comes to GST on property is the aim to encourage different sections of society to purchase homes with greater ease. India has a robust affordable housing programme and offers subsidies to buyers and incentives to developers to promote the same. GST is no exception to these efforts. Currently, the GST on affordable housing in India is 1% without any input tax credit (ITC). On the other hand, the GST applicable on standard housing in 5% without ITC.

Joint Development Agreements:

A Joint Development Agreement is a contract between a landholder and a developer, wherein the former grants the latter the right to build on his land in exchange for profits from the end result. For residential JDAs pre-dating March 2019, the GST was charged at the rate of 18% of the total value of the contract. However, after March 2019, GST on residential JDAs works as per the reverse charge mechanism wherein a GST of 1% is levied for affordable housing and 5% for non-affordable.

Real Estate Developers:

Apart from buyers, real estate developers are also subject to GST rules and must pay tax on the projects they undertake. Currently, real estate and construction companies must pay GST at 5% on residential projects and 12% on non-residential projects. Do note that real estate developers are only liable to pay GST on the sale of an apartment before the CC (Completion Certificate) is issued or before the first occupation, whichever is first.

State-Specific Considerations:

While there are various blanket GST laws that apply across the country, states are also allowed to create local regulations specific to that area. Stamp duty and registration charges in India vary from state to state. While the stamp duty charges across states range from 5-8%, registration charges are levied at around 1% on the value of the property.

If you are a homebuyer looking to invest in property in the real estate market in India, it is essential you know all the legal ramifications of a transaction. Since investing in real estate is a capital-intensive affair, including taxation, it is best to pick a reputable real estate builder to ensure your purchase goes on smoothly. From world-class modern construction quality to homes created by the top designers in India, at Lodha, we have it all! We offer a diverse range of housing options, including spacious and comfortable ready-to-move-in apartments across major cities to help you save on GST in real estate.

Move into your dream house without worrying about GST and build a beautiful life with the help of Lodha.