The passing of the Bill for Goods and Services Tax or GST has brought reprieve on taxation for many. What GST means is that now all goods and services will be levied with one single tax rather than different taxes like service tax, VAT etc. In some cases, this will mean that people will have to pay lesser while in some cases they will have to pay more, in way of tax. But how does GST have an impact on home loans and new home buyers?
Like everything else GST will have an impact on real estate as well. Here’s how GST on real estate will impact your housing loans and new home purchases.
1. Under construction flats cheaper than ready to move in flats: Investing in under construction properties will be more beneficial than investing in ready to move in apartments. This is because even though the actual GST rate on under-construction properties is 18 per cent, the effective tax on such properties would be 12 per cent as under the new regime developers will be allowed input tax credits.
2. No GST on rent: Those who are renting out their properties have nothing to worry about since there is no levy on GST on rent of residential property. The same cannot be said about commercial property though since those who have given their premises on rent to be used for commercial or industrial purposes will have to pay an 18 per cent tax in case they are earning over Rs 20 lakh annually.
3. Simplify tax on real estate: Real estate is one of the top contributors to the GDP of India. However, the management of multiple taxes that are levied on real estate is difficult. With GST on real estate this problem is solved. All the taxes will be clubbed into one. This simplifies the taxation on property and to some extent reduces charges as well.
4. GST on home loan: Since home loans are subject to service tax they will also be subject to GST. However, since the rate of GST on home loans is 18% housing loans are set to be more expensive than before.
5. GST on home loan EMIs: Home loan EMIs for under construction properties will be significantly lower than EMIs on home loans in ready to move in flats. The home loan interest rates have gone up significantly higher under GST.