To boost the residential segment of the real estate sector, GST Council has reduced the GST on residential properties significantly to 1% on Affordable Housing and to 5% on all other residential properties. Not just that, but the GST Council redefined Affordable Housing in favor of Buyers. This is a welcome change and is expected to help Residential Real Estate sector.

GST on Residential Properties Reduced – to 1% on affordable housing and 5% on all other

When does GST apply on Residential Real Estate?

Not everything you pay towards the Residential Property comes under the scope of GST. Here is what is considered for GST:

• Only on the basic cost of the property including Land + Cost of Construction
  • Land does not come under GST but the GST rates stated everywhere are composite when 1/3rd of the cost is allocated to land; GST levied on rest and stated as a composite cost. For example: Until 31st March, 2019 – (a) there was no GST on land and 1/3rd of the total cost is used as a standard to calculate the value of land (b) there was 18% GST on construction cost. So the math was 0% on 1/3rd + 18% on 2/3rd = 12% on total and this composite 12% has been stated as the GST rate on Real Estate.
  • Basic Cost does not include other charges such as EB connection charges, Association charges etc.
• Only on ‘under construction’ properties. Once occupancy certificate is obtained, the property is no longer considered to be under construction and GST does not apply.

1% GST on Affordable Housing:

Don’t be confused with the name Affordable Housing. For the purpose of GST, many Apartments qualify for Affordable Housing and please check this.

• Metros:
  • Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR)
  • If value of your property is ₹45L or less [AND] if the carpet area is 60 sq.mt or less (645 sq.ft or less), then your property qualifies as affordable housing.
• Non-Metros: All other places that are not Metros, will be considered Non-Metros.
  • If value of your property is ₹45L or less [AND] if the carpet area is 90 sq.mt or less (968 sq.ft or less), then your property qualifies as affordable housing.
• It’s the Carpet Area that counts: Generally, the carpet area is 70% of the super built-up area (aka saleable area). As a rule of thumb, if you are in metros, 920 Sq.Ft saleable area (most likely a nice 2BHK) under ₹45L qualifies for 1% GST.

5% GST on In General:

If your property does not qualify for Affordable Housing, then GST is 5%.

Cheatsheet:

Herre cheatsheet with all of this on flow chart.

Remember, these rates apply from 1st April, 2019 onwards. Happy Investing!

The big headline of Budget 2019 is the Affordable Housing segment is the single biggest beneficiary in Indian Real Estate. The BSE’s real estate index climbed as the government reiterated its push for affordable housing and announced new measures that could boost home buying. Let’s look at all the announcements that impact Real Estate Market in India.

#1 Raise in tax rebate limit = More disposable income for the middle class

Tax Rebate limit has been doubled up to 5L. That means anyone making up to 5L in annual income (6.5L including rebates for investing in tax saving schemes) will pay zero income tax. That also means more disposable income for the middle class. As most of the middle class aspires to own a home, there is a high probability of that disposable income going towards owning a home.

#2 Tax Incentives for Affordable Housing Builders extended by one more year

Exemption on 100% profits for developers of affordable housing projects (Section 80-IAB) has been extended by one year, covering projects approved up to March 31, 2020. Tax incentives combined with the existing demand for affordable housing, there is going to be more supply of affordable homes in the market for the next few years.

#3 Tax exemption on notional rent on unsold homes increased to 2 years

Real-estate developers are relieved over 2-year tax exemption on notional rent on unsold homes. Till now, unsold inventory over one-year-old was considered stock-in-trade and the builder had to pay notional rent on those units. As the demand slowed down, this helps bridge the gap.

#4 TDS deduction limit on rent increased to 2.4L per year

Tenants were required to withhold TDS on rents that were more than 1.8L per annum. With this new change, the TDS withholding limit has been increased 2.4L per year. It’s a relief for real estate investors although the increase could have been bigger.

#5 Capital Gains Relief by investing in new property

Capital gains of up to Rs 2 crore, generated after selling a property, can now be invested in more than one property. Earlier it was required to be invested only in one property. It’s somewhat a relief but we do not believe whole of people benefit from this.

#6 Tax exempted on notional rent on a second self-occupied house

A notional rent is applicable to the second house if someone has more than one house, has been waived off, considering the needs of citizens who migrate to for job opportunities, as well as those who have to maintain two houses for family reasons. Again, we do not believe that a whole of people benefit from this because it only applies when both first and second homes are self-occupied.

#7 Setting up Panel of Ministers to look at GST for Real Estate

Budget 2019 has promised to set up a panel of ministers to look at GST on Real Estate – with intent to check the possibility of reducing GST. This ‘looking into it’ has been happening for a while and we do not believe this announcement has any significance.