When talking about buying or selling residential property, understanding GST on Residential Property is essential for making informed decisions. It impacts property pricing, rental agreements, and construction services. For buyers, knowledge of GST on Residential Property helps estimate the true cost, especially for under-construction homes where GST is applicable. Sellers and developers must price properties considering GST to meet tax requirements. This guide helps navigating GST complexity, ensuring smooth transactions and avoiding unexpected costs.

Why GST Matters in Real Estate

The structure of indirect taxation has now been made uniform across India by replacing several indirect taxes with GST. While this improvement aims to simplify taxation, reforms brought about by the GST with respect to the taxation of property transactions would provide something for the buyer and the tenants to keep in mind while planning their expenditure, while on the other end, it will affect the developers’ pricing and construction.

When Does GST Apply to Residential Property?

GST applies to various parts of property transactions, but there are clear cases where it does and doesn’t apply.

GST is Applicable for:

• Under-construction properties: If you buy a property that is still being built, GST applies.
• Rental income from commercial use: If a residential property is rented for business, GST is charged.
• Additional costs: Charges for parking, maintenance, and club memberships may include GST if they are part of the sale agreement.

GST is Not Applicable for:

• Completed properties: If a property has a Completion Certificate, GST does not apply.
• Personal residential rentals: Renting a home for personal use is exempt.
• Resale of property: Resale transactions are covered under stamp duty and registration fees, not GST.

GST on Buying Residential Property

For under-construction properties, GST applies at these rates:

• Affordable Housing: 1% GST for properties priced up to ₹45 lakh with specific size limits (60 sq. m in metro cities and 90 sq. m in non-metro cities). No Input Tax Credit (ITC) is available.
• Non-Affordable Housing: 5% GST for properties above the affordable housing limit, without ITC.

GST on Additional Costs:

• Parking: If included in the agreement, GST applies.
• Maintenance Charges: If a housing society charges more than ₹7,500 per month per home, 18% GST applies.
• Club Memberships and Amenities: If included in the property agreement, GST applies.

GST on Renting Residential Property

Understanding GST on rent helps landlords and tenants avoid confusion.

• For commercial use: 18% GST applies to residential properties rented for business purposes.
• For personal use: No GST applies if the property is used as a home.

Exemptions:

• Personal residential use: No GST applies.
• Low rental income: If annual rental income is below ₹20 lakh (₹10 lakh in special category states), GST registration is not required.

GST on Redevelopment of Housing Societies

• Redevelopment, if in the scope of construction, is a taxable service under GST.
• If the payment is mentioned in the Joint Development Agreement (JDA), then GST is payable. If it is not mentioned in the JDA, then payment is not required. 
• Flats given free of charge to society members do not attract GST. 
• The developer would be liable to charge GST on the saleable part to the extent of units sold. Input Tax Credit (ITC) would be available to the developers on only the taxable portion of the project.

ITC for Redevelopment Projects

• If a developer provides free units to society members and sells part of the building, GST applies only to the saleable portion.
• ITC can be used to offset GST liability for the taxable part of the project.
• Since construction requires inputs and services, ITC applies to taxable supplies related to the project.

GST on Construction Services

The standard GST rate on construction services is 18%, but exceptions exist:

• Affordable housing: 1% GST.
• Certain infrastructure projects: 5% GST.
• Works contract services: 12% GST when materials and labour are included.
• Pure labour contracts for single residential units: Exempt from GST.

Input Tax Credit (ITC) on Construction and Its Limitations

ITC helps developers reduce tax liability by offsetting GST paid on materials and services. However, it is subject to conditions:

• ITC is unavailable for properties under the 1% GST rate (affordable housing) or 5% GST rate (non-affordable housing).
• Developers can claim ITC only for properties sold during construction. ITC does not apply to ready-to-move-in units.
• ITC cannot be transferred to buyers or adjusted against other tax obligations.

GST Calculation on Under-Construction Property

Let’s understand GST for a property under construction with a simple example:

Suppose a property is said to have an agreement value of ₹75 lakh and is taxable at the standard GST rate of 18%. The GST payable shall be calculated as follows:

• Service Component: ₹75,00,000 * 18% = ₹13,50,000
• Material Component: GST on materials if material cost is ₹15 lakh= ₹15,00,000 * 18% = ₹2,70,000
• Total GST: ₹13,50,000 (service) + ₹2,70,000 (material) = ₹16,20,000
• The actual GST could differ depending on the location, exemptions allowed, and rules that may apply.

When you Need a Property Lawyers in GST

When dealing with residential properties and GST, property lawyers play a crucial role in ensuring compliance with legal frameworks. Property law is complex, and understanding the nuances of how GST interacts with property transactions, construction services, and rental agreements requires expert knowledge.

Whether you are buying, selling, or renting a property, having a property lawyer on your side helps in safeguarding your interests and avoiding any costly legal pitfalls. 

Roles of Property Lawyers:

• Ensure compliance with legal frameworks for buying, selling, and renting residential properties.
• Safeguard your interests and prevent costly legal mistakes.
• Draft and review contracts to ensure clarity and protection of your rights.
• Provide guidance on the tax implications of property transactions and rental agreements.
• Ensure all legal formalities are properly handled for smooth transactions.
• Resolve disputes related to GST on residential property efficiently.
• Prevent legal hassles and keep your property investments secure and compliant.

Case Study: Legal Solution for Sale Deed Registration & GST on Redeveloped Property

A client approached Zolvit for help with two property transactions: land redevelopment and selling an apartment. They were unsure about the GST implications for the redeveloped property and needed assistance with registering the sale deed.

Zolvit’s legal team clarified that GST only applies to under-construction properties, meaning the redeveloped property was exempt. They also outlined the necessary steps for registering the sale deed, ensuring the client followed the correct process.

With expert legal guidance, the client avoided unnecessary GST payments and completed both transactions smoothly. This case underscores the importance of professional legal support when handling GST and property registration.

How Zolvit Can Give Legal Support

Dealing with GST with respect to residential properties can be an intricate task, but with Zolvit around, it becomes simple. Our professional team provides end-to-end GST services to keep you compliant without too much effort. Whether you are a buyer, seller, landlord, or developer, we offer:

• GST Registration and Return Filing – Register for GST and file returns accurately and on time.
• GST Compliance Support – Make sure that property transactions comply with up-to-date GST regulations to avoid the risk of penalty.
• Tax Calculation and Advisory – Be well informed about the application of GST on purchase, sale, or lease, and receive expert assistance on saving taxes.
• Input Tax Credit Backup – You avail of maximum ITC benefits on construction and redevelopment projects.
• GST Documentation & Legal Backup – Proper invoices, contracts, and legal counsel will help you comply easily.

Conclusion

Knowing how GST works concerning residential property will help you plan better and save extra costs. Any transaction, whether buying or renting, selling or developing, will run smoothly only if GST rules are understood.

At Zolvit, we provide all legal and tax services concerning GST, which will help you control GST effectively. Please contact us for guidance and assistance on your property transactions.

 

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