GST and Your Dream Home: What Every Indian Buyer Must Know

GST on Home Loan


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Last updated on 27th December 2023

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GST on Home Loans

The Goods and Services Tax (GST) has been one of the most significant reforms in India's indirect tax regime. Since its implementation in July 2017, it has touched various sectors, including the real estate market. If you're considering buying a home in India, understanding how GST on home loan and property impacts your purchase is crucial.

1. The Basic Structure of GST

Before diving into the specific details, it's good to know the basic structure of GST. It is a multi-stage, comprehensive tax that is levied on the supply of goods and services. India's GST is structured at various rates, including 5%, 12%, 18%, and 28%. There is also a 0% tax rate, and some goods are exempt from GST altogether.

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2. GST Rates on Real Estate

The real estate sector witnessed substantial changes in GST rates over the years. Here's a quick breakdown:

  • Under Construction Property: Initially, the GST was 12% with input tax credit (ITC) for regular homes and 8% with ITC for affordable housing. However, in April 2019, the GST Council revised these rates:
  • For non-affordable homes: Reduced to 5% but without ITC.
  • For affordable homes: Reduced to 1% without ITC.
  • Completed and Ready-to-Move Properties: Such properties are exempt from GST. This means if you're buying a property which already has a completion certificate, you will not be paying any GST.

3. GST on Home Loans

While GST does not apply directly to the loan amount you take, it is levied on the processing fees, legal charges, and other services the bank offers while sanctioning the home loan. Generally, these charges attract a standard GST rate, often 18%.

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4. Definition of Affordable Housing

To claim the reduced GST rates on affordable housing, one must know the definition of the term:

  • In metro cities (Delhi, Mumbai, Kolkata, and Chennai), an affordable house is one with a carpet area of up to 60 sq.m (approximately 645 sq.ft) and costs up to ₹45 lakh.
  • In non-metro cities, the carpet area can be up to 90 sq.m (around 968 sq.ft), with the price cap remaining the same.

5. Input Tax Credit (ITC)

While ITC was a beneficial feature for developers (allowing them to claim credit for taxes paid on inputs), the new GST rates from April 2019 disallowed this benefit. The reduction in rates was to provide relief to the end consumer, but it's still debated whether removing ITC has been truly beneficial.

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6. GST on Other Property Types

Commercial properties, such as office spaces and shops, attract a GST of 12%. Land leasing, renting of commercial properties, and some other property transactions also come under the purview of GST.

7. Benefits for Homebuyers

While GST introduced a new layer of tax, it also eliminated multiple other taxes like VAT, Service Tax, and more, bringing more transparency to the system. The reduced rates for under-construction properties can also translate to some savings for homebuyers.
Understanding GST's impact on home buying can guide you in making an informed decision. While there are benefits, it's always wise to consult with real estate experts and tax advisors before finalizing your purchase. The Indian real estate market is vast and varied, and keeping abreast of the latest tax rules can help you navigate it better.

FAQs about GST on Home Loan

The home loan borrower will pay GST, but it's essential to note that GST is not levied on the loan amount itself. Instead, it's charged on the various service charges associated with the loan, such as processing fees.

The loan amount (whether above or below ₹50 lakhs) does not attract GST. However, the services associated with processing the loan, like processing fees, would have GST applied to them irrespective of the loan amount.

No, GST is not charged on the loan amount. It is charged on the processing fees and other service charges related to sanctioning the loan.

Yes, the loan amount is exempt from GST. However, the services related to the loan (e.g., processing fees) are not exempt and attract GST.

The GST is not on the home loan amount but on associated services. Typically, the processing fees and related services often attract a GST rate of 18%.

GST and stamp duty are separate components. While GST is a tax levied by the Central and State governments on services, stamp duty is a state tax on property transactions. When taking a home loan, banks or financial institutions might finance the property's cost, which usually does not include stamp duty and GST. However, some lenders may offer additional bridging loans or top-ups to cover these costs.

No, GST is not applied on stamp duty. They are separate charges. Stamp duty is a tax on property transactions and is levied by state governments, while GST is a central and state tax on goods and services.

Published on 28th October 2023