Buying a residential property may be a lengthy procedure if you wish to make the best of the process. A buyer should not only consider the charges he is liable to make the seller at the beginning of the transaction but also the amount he is liable to pay as tax.

On purchase of a property, you may be made liable to pay various taxes such as GST, registration charges, and stamp duty charges for the registration processes.  One of the major relief granted by the GST Council is that they have reduced the tax rates for the home buyers of the under-construction regular house from 12% to 5% and from 8% – 1% for the affordable houses.

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How do I calculate GST on the resale of residential property?

The schedule II of the Central Goods and Services Tax Act describes the activities that could be treated under the services and good category for GST purposes is provided as follows:

“Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of the completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.”

According to the provisions of the Central Goods and Services Tax Act provides that residential properties that have received completion certificate or that are classified as ready-to-move-in property cannot be brought under the ambit of GST. The Act provides that only those properties that are under construction, to be taxed with GST.

Thus no property which is resold is to be taxed with GST as they do not fall under the category of Goods and Services provided by the Act for which tax is applicable. The resale properties are only subjected to taxes such as stamp duty taxes and registration taxes while they are transferred. For those properties that are resale properties under construction, or that property that is resale property however hasn’t received the occupancy certificate, GST will apply to such properties.

How do I calculate GST on the sale of residential property?

As already the Schedule II of the CGST Act, construction of a complex, building, civil structure intended for sale to a buyer is charged with GST if considerations have been received on the same before the issuance of the completion certificate. The construction properties are brought under the ambit of the work contracts and are taxable as service.

The rate at which the GST council has decided to tax complexes or a building that is under construction at a rate of 18% for the sales transaction. The Rate of 18% is made applicable only on the 2/3rd of the value of the under-construction property. In simple words, it can be stated that a tax of 12% is applicable or charged as GST on the total sales amount.

Assetscan-GST

This amount of GST is made payable to the developer and as already mentioned above, will not apply to the resale property. For the composite work services contract, 12% of the 2/3rd of the total value of 8% of the total value is calculated to determine the taxable amount. This formula applies to affordable houses with a carpet area of 60 square meters.

What is the GST rate for residential property registration?

GST Rates that apply to the registration of residential property vary according to the property which is transferred. The rates have been cut from 8-1 % for affordable houses while a deduction in the tax rate from 12-5% has been granted on the regular housing units. The law defines affordable housing as those houses which have a carpet area of 60 sq. mt unit in the metro and 90 sq. mt home in non-metro areas which may value up to Rs 45 lakh.

The government has eliminated the Input Tax Credit (ITC) for the builders with the view to affect the base value of the property, thus adding more incentives to the buyer of the property. However, tax is not payable if the completion certificate has been issued before the registration process. GST does not apply to the resale properties as well.

Is GST levied on stamp duty?

The direct answer to this question is no, GST is not levied on the Stamp Duty. Stamp Duty is imposed by the state revenue division on the various documents that you wish to register under the Indian Registration Act of 1908 and the stamp duty charges are payable on the registration of the property. The stamp duty charges are imposed on the property based on the market value of the property or the sales value of the property, whichever is higher. The stamp duty charges are currently set at a rate between 3-12%.

For example, the State of Uttar Pradesh imposes a stamp duty of 7% on the higher contracted value or the circle rate. Women are granted a concession of 1% for up to a value of Rs. 10 lakhs of transaction. GST is only applicable to under-construction properties or properties for which the completion certificate has not been obtained. GST is applicable at a rate of 5% on the regular house while 1% is applied to affordable houses.

Is GST applicable for flat purchase?

Flats for which a completion certificate has already been obtained does not fall under the purview of GST. However, the GST amount is payable on those properties which are under construction. The amount may be calculated following the process mentioned below:

  • The government has imposed a Goods and Services Tax of 18% on the under-construction properties.
  • Out of the 18%, you may deduct 1/3 and the rest is taxable at 12% GST. The 1/3 deduction granted is on the land value which is not charged under Goods and Services Tax.
  • After the 33rd amendment made on Goods and Services Tax, 12% Goods and Services Tax has been slashed and now the buyer is liable to make only 5% as Goods and Services Tax in cases of regular under construction property while only 1 % in case of those houses that are affordable.
  • This 5% Goods and Services Tax Rate is only applicable in the absence of Input Tax Credit, on under-construction properties.

Conclusion

Summing up, a person may have to pay three different taxes to the government while he purchases a property, i.e. Goods and Services Tax, stamp duty charges, and the registration charges. The Goods and Services Tax is payable at a rate of 18% on the 2/3rd amount of the total sales amount. 1/3rd of the total sales amount is exempted because it is treated as land value.

Goods and Services Tax is not charged against the stamp duty. The residential properties have been categorized as affordable houses and regular houses for charging Goods and Services Tax. Buying a house is a great responsibility and involves various charges. Thus it is important to understand the various charges associated with the sales transaction to help you plan the financing.