Buying a Property in Mumbai – 9 Things You Need to Know About GST

Owning your own house is a dream for everyone, it gives you the freedom to live on your terms and allows total independence. Buying a house is a big investment and it needs a lot of introspection. From taking care of the finances to the paperwork it requires a lot of work.

One of the important things to take care of is the Tax process and as we all know that our Indian Government has replaced all the other taxes with GST (Goods and Service Tax). This article will help as a guide for those who are planning to buy a property in Mumbai and will provide all the necessary details one should know about GST to invest.

So in the article, we will be discussing 9 things you need to understand about GST if you are planning to buy a property in Mumbai.

What is GST?

GST is an acronym for Goods & Services Tax. It is a single, nationwide tax on products and services which replaces various indirect taxes levied by the central and state governments, GST has been in operation in India since 1 July 2017

• GST on affordable and non-affordable housing: If you are planning to purchase an under-construction property like a flat, apartment, or bungalow, then you have to pay GST at the rate of 1% for affordable housing and 5% for non-affordable housing. You also have to pay GST on developable plots. Developable land, in simpler terms, means the piece of land which has received all the necessary permission from the Municipal Corporation and local authorities for future development.

• GST on completed project: GST is not applicable on completed projects or ready-to-move property. Those projects who have received a completion certificate from any competent authority come ready to move or complete projects.

• GST is not applicable in the purchase of land: As the sale of land comes outside the purview of GST construction services, because it does not include the transfer of goods and services, hence GST is not applicable. Although stamp duty and registration charges continue to apply.

• Affordable property and calculation of GST rate: Any housing unit whose worth is more than 45 lakh and measurement is up to 60 square meters is considered as affordable property. The area specified is only for metropolitan cities such as Mumbai, Delhi, Hyderabad, and the Chennai region. Any other place in India should cover an area of 90 square meters.

The following table shows the calculation of GST rates on affordable housing property with the before and after changes in the rate from April 1^st, 2019:

• GST rate on construction and building materials: If you have thought of purchasing land and wish to do construction of your own, then it is a must that you know the different GST rates on construction and building materials starting from the basic such as cement, bricks, steel to interior materials like tiles, marbles, paints, and electrical machinery and accessories. The rate may vary from 5% to 28% depending on the goods.
•  One time maintenance deposit: The Gujrat bench of Authority for Advance Rulings (AAR) recently made it important that an onetime payment of an amount will be paid by the by the buyer to the builder and it is non-re-fundable.
• GST on rental property: As long as you are using your property for commercial purposes, you are not eligible to pay any tax on rental income. But if the landlord has allotted its property to any visit enterprises for production, sale, or supply for services, then 18% of GST is charged on such rental income if it exceeds ₹ 20,0000 annually
• GST on home loans: While applying for any type of loan including a home loan, the bank charges some service fees to us which can range from 0.25 to 1%. And at the time of payment, we have to pay the principal as well as the interest amount. Hence it doesn’t come under any goods or services so no GST is charged on that. You have to pay  GST on the processing charges only. Currently, the rate is 18% on all financial services, which may vary in the future as per government norms
•  Current update on GST rate: With an effect from 1^st April, the GST council has decided to increase the tax on the supply of bricks by 12%. And it may affect the property construction cost. This step was taken after the meeting helped in Lucknow on 17^th September 2021 by the GST council.

You might come across several issues and concerns regarding the tax process if you are not from a financial background. We advise you to consult a tax assistant or someone who has knowledge and experience in it. Hope this article has been informative for you to understand the basics of the GST tax system and will help you to buy a property in Mumbai with GST terms.