GST on Flat Purchase: Tax Rates, Calculation and Guidelines

Over 1.73 lakhs of residential units were sold in India in just the first half of the year 2024. But owning a home comes with many challenges. Out of them, figuring out the right GST on flat purchases would probably rank in the top five. 

Whether you’re a real estate developer or an aspiring homeowner, understanding how GST works on property transactions in India could save you from costly penalties in the due course of time. 

As an aspiring future house owner, if you want to see yourself there, use this comprehensive guide to quickly understand the GST rates on flat purchases and the concerned guidelines in the easiest possible manner. Let’s get started. 

What is GST on Property Purchases in India?

Thanks to the 2017 tax reforms, GST applies to under-construction properties awaiting a completion certificate or ready for occupancy. Just like buyers, GST benefits developers as well. Before GST, developers were bogged down by a series of taxes–VATs, central excise, entry tax, you name it. To make things worse, they couldn’t claim refunds for their development costs. 

Guess who ended up paying the price? The buyers! 

However, with GST in place, things are more straightforward. It has brought transparency into the process by specifying the applicable GST rate to provide transparency for everyone involved. 

Let’s see how GST works on flat purchases. 

Pre-GST Taxes on Flat Purchases

Before the GST was introduced in India, an aspiring flat owner used to pay several separate taxes, each with its own rules and rates, as shown in the table below. 

GST Rates on Residential Properties and Flat Purchases  

When it comes to paying GST, all residential properties can be grouped into the following two categories: 

1. Affordable housing: a house with a carpet area of up to 60 sq. meters in metropolitan cities and up to 90 sq. meters in non-metropolitan cities worth 45 lakhs minimum
2. Non-affordable housing: Residential properties that do not meet the criteria of affordable housing 

In India, you have to pay GST for under-construction properties, not for ready-to-move-in flats, with a completion certificate. 

Here’s a breakdown of the old and the new GST regimes on different types of residential properties:

Input Tax Credit (ITC) on Flat Purchases

Under Section 17(5)(d) of the CGST Act, taxpayers generally cannot claim ITC on GST paid for constructing immovable property for their own use (both commercial and residential). However, recent judgements have introduced some exceptions.

The Supreme Court of India has ruled that if the construction of a property is essential for providing rental or leasing services, it could be considered a “plant.” This exception allows developers to claim ITC for GST paid on construction materials and services. The Court emphasized that this should be assessed case by case using a “functionality test.”

For residential properties, ITC cannot typically be claimed for flats intended for personal use. However, if the property is meant for rental purposes and qualifies under the plant exception, developers may claim ITC.

For commercial properties like malls or offices, claiming ITC is generally easier to justify if explicitly built for rental income.

GST on Maintenance Charges for Flats 

Did you know that even your flat’s maintenance fees could come with a GST tag? Yes, those seemingly small monthly charges for upkeep and services aren’t exempt from taxes!

The applicability of GST on maintenance depends on two factors: 

• The annual turnover of the housing society 
• Maintenance charges per member of the society per month 

Also, please note that if the maintenance charge is Rs 10,000, GST will be applied to the entire amount instead of the excess of Rs 2,500. 

Now, let’s understand a straightforward way to calculate GST on flats. 

How GST is Calculated on Flats

Here’s a straightforward way to understand GST on buying a flat: 

• Start with the Base Price: Begin with the basic cost of the flat before any extras. 
• Apply GST on the Base: For under-construction residential properties, GST is usually 5%. For affordable housing, it’s 1%. 
• Add in the Extras: Any extra charges like parking, maintenance, or clubhouse fees are also subject to GST, so include these. 
• Calculate Total GST: Add up all the GST amounts from the base and extra costs. 
• Get the Final Price: Combine the base price, extras, and total GST to know what you’ll be paying in full.

Impact of GST Rates on Flat Buyers 

• Increased Cost for Under-Construction Flats: GST adds 5% for regular and 1% for affordable housing, raising costs compared to GST-exempt ready-to-move flats. 
• Higher Loan and EMI Burden: Added GST raises loan amounts and EMIs, impacting monthly budgets. 
• Shift to Ready-to-Move: Many buyers prefer ready flats to avoid GST costs. 
• Developer Compliance: Ensuring developers follow GST rules can prevent future issues. 
• Transparency in Costs: GST clarifies total costs, aiding in financial planning. 
• Professional Guidance: Expert advice helps navigate GST complexities and optimize savings.

Benefits of GST for Residential Real Estate 

GST isn’t all about added costs—the core aim is to simplify taxes and boost transparency. Here’s how:

• One Tax Nationwide: GST reduces the complexity by applying a single tax across India. So that both the developers and buyers can take advantage.  
• Clearer Pricing: It removes the hidden fees and shows the actual tax portion in property prices.
• More Formal Transactions: GST reduces cash deals, promoting transparency and building trust in the market 

GST on Government Housing Schemes: 

1% GST: Under major government schemes like Pradhan Mantri Awas Yojana and Rajiv Awas Yojana, the government has reduced the GST rate to 1% to ease the financial burden on homebuyers. 

With low GST on these affordable projects, the government supports its goal to make it easier for people to buy homes.

Read more:
GST on House Rent and Commercial Property Rent
GST Impact on Land and Sale of Developed Plots
FAQs on the Real Estate Sector under GST