The Indian real estate sector has seen significant growth over the last decade, driven by factors such as urbanisation, increased disposable income, government initiatives and increased foreign investment. To keep pace with these developments and ensure uniform taxation, the Goods and Services Tax (GST) was introduced in 2017. Since then, GST has had an important impact on the real estate industry.
GST has replaced multiple indirect taxes, including value added tax (VAT) and service tax, and introduced new rules that business owners need to be aware of. Understanding the implications of GST rate on real estate is essential to avoid legal issues and maximise business opportunities. GST on cars is also an important consideration for real estate businesses involved in the automotive sector.
Real estate and GST
GST is applicable in various aspects of the real estate industry – there is GST on residential property and commercial property, the leasing of property, construction services, and more. The GST rate on real estate transactions is generally 5%, with some exemptions and deductions depending on the type of property and its intended use.
For example, the sale of under-construction residential property is subject to a GST rate of 5%, while the sale of fully constructed residential property is exempt from GST. However, if the property is sold by a developer within five years of completion of construction, GST will be applicable at a rate of 1% on the transaction value.
Similarly, the leasing of commercial property is subject to a GST rate of 18%, while the leasing of residential property for private use is exempt from GST. Understanding the documents required for gst registration can help ensure compliance with these regulations.
GST impact on affordable property
The implementation of GST (Goods and Services Tax) in India has had a significant impact on various sectors, including real estate. The introduction of GST aimed to bring about more transparency and ease for both builders and buyers.
Under GST, affordable properties are given special consideration. As defined by the government, an affordable property is a residential house/flat of carpet area of up to 90-square-meter in non-metropolitan cities/towns and 60-square-meter in metropolitan cities having value up to Rs. 45 lakh.
Earlier, the GST rate on affordable housing was 8%, but it was reduced to 1% in April 2019 without input tax credit (ITC). This move aimed to boost the demand for affordable houses.
Components |
Before 1st April 2019 |
After 1st April 2019 |
Property cost (per sq ft) |
Rs. 3,000 |
Rs. 3,000 |
GST rate on the purchase of affordable housing |
8% |
1% |
GST amount (per sq ft) |
Rs. 240 |
Rs. 30 |
Input Tax Credit benefit for construction material of Rs. 1500 @ 18% |
Rs. 270 (Available) |
Rs. 270 (Not Available) |
Total GST amount (per sq ft) |
Rs. 240 - Rs. 270 = -Rs. 30* |
Rs. 30 |
Impact on business owners
The impact of GST on business owners in the real estate sector varies depending on the type of property and the nature of the transaction. However, one area of impact is on the pricing of real estate transactions.
Business owners need to ensure that they comply with GST regulations to avoid legal issues and ensure smooth business operations. They also need to be aware of the financial implications of GST on real estate, including the pricing of goods and services.
For example, in the case of under construction properties, builders may need to increase their prices to account for the GST that is applied to their services. This can impact the competitiveness of their products and services, and may require them to find alternative financing options. To know more about the gst state code and how it affects your property transactions, business owners should consult local GST guidelines.
Understanding the financial implications of GST on real estate is essential for business owners to maximise profitability and ensure financial stability.
Financing solutions
Business financing solutions such as business loans can help business owners in the real estate sector finance their operations, including the construction of new properties, purchase of land and other expenses. Business loans enable business owners to avail of the necessary funds to meet the increasing demand in the market.
Bajaj Finance offers substantial funding of up to Rs. 80 lakh, with competitive interest rates, and longer repayment tenure options, which can help businesses grow and expand their operations.
Here are some of the advantages of opting for a Bajaj Finserv Business Loan:
- Flexi Loan facility: Reduce your EMIs, withdraw funds as required, and conveniently prepay using our Flexi Loan options.
- No collateral: Acquire a loan without the need for pledging any assets as collateral.
- Convenient repayment tenure: Experience increased flexibility in repaying your loan, with tenure options spanning from 1 year to 8 years.
- Substantial funding: Access substantial funds, up to Rs. 80 lakh, to meet your business requirements.
GST has important implications for businesses that operate in the real estate sector. As a business owner, it is crucial to understand the various GST rates that apply to different types of property transactions to avoid legal issues and maximise profitability. Financing solutions such as business loans can help businesses in the real estate sector finance their operations and enable them to achieve their business goals. To begin the process of gst registration, business owners can find helpful online resources.
