The Goods and Services Tax (GST) has revolutionized Indiaโs taxation system, consolidating various indirect taxes into a single tax structure. While GST has simplified the tax regime, it has also introduced new complexities for the real estate sector. Whether you are buying, selling, or renting residential, commercial, or other types of properties, understanding how GST applies is essential for developers, property owners, and tenants.
In this blog, weโll break down the GST rules and rates applicable to the sale and rent of residential, commercial, and other types of properties in India.
1. GST on Sale of Residential Properties
In the case of the sale of residential properties, the applicability of GST depends on whether the property is under construction or is a ready-to-move-in property.
a. Under Construction Properties
GST applies to the sale of under-construction residential properties. This includes flats, apartments, and houses that are not yet completed and handed over to the buyer. The tax rate is as follows:
- GST Rate (Residential under construction):5%ย without input tax credit (ITC) orย 12%ย with ITC.
- Without ITC:ย If the builder opts for a 5% GST rate, they cannot claim ITC on the input costs such as raw materials, construction costs, etc. This rate is generally opted for to simplify the tax burden.
- With ITC:ย If the builder chooses to pay the higher GST rate of 12%, they can claim input tax credit (ITC) on the taxes paid on construction materials, labor charges, and other inputs used in the construction of the property.
- If the sale value of an under-construction residential property is โน50 lakh, and the GST rate is 5%, the buyer will need to payย โน2.5 lakhย as GST (5% of โน50 lakh).
- Alternatively, if the builder opts for the 12% rate and the buyer is eligible for ITC, the effective GST burden may be lower due to the credit on construction costs.
b. Ready-to-Move-in Properties
For properties that are ready to move in, GST is not applicable. This is because the GST law does not apply to the sale of immovable property that is already complete and ready for possession.
- Example:
If a person purchases a fully constructed apartment, no GST will be levied on the sale price.
2. GST on Sale of Commercial Properties
The sale of commercial properties is subject to GST, irrespective of whether the property is under construction or ready for possession. The GST rate for commercial properties is similar to that for residential under-construction properties:
- GST Rate (Commercial under construction):ย 12%ย with ITC.
This rate applies to commercial properties such as office spaces, retail stores, and other business properties that are still under construction.
- Example:
If the sale price of an under-construction office space is โน1 crore, the GST payable will beย โน12 lakhย (12% of โน1 crore). The builder can also claim ITC on construction inputs.
For ready-to-move commercial properties, GST is not applicable as the transaction is considered a sale of immovable property.
3. GST on Rent of Residential Properties
GST on the rental of residential properties is applicable in certain situations. The general rule is:
- GST Rate (Residential Rent):ย Nilย for residential properties used forย personal purposes.
However, GST is applicable on residential property rent if the property is used for business purposes, such as renting out an apartment for short-term accommodation (like an Airbnb) or a property leased to a commercial entity. In this case, the GST rate applicable will be:
- GST Rate (Residential Rent for Business Purposes):18%.Example:
- If you rent out a property for a commercial use (like setting up an office), the rental income will attract an 18% GST. For instance, if the rent is โน50,000 per month, the GST payable will be โน9,000 (18% of โน50,000).
4. GST on Rent of Commercial Properties
Commercial properties, such as office spaces, retail outlets, and warehouses, are subject to GST when rented out.
- GST Rate (Commercial Rent):18%ย on the rental value of the property.Example:
- If the rent for an office space is โน1 lakh per month, the GST payable will be โน18,000 (18% of โน1 lakh). This GST is typically paid by the tenant, and the landlord will collect it along with the rent.
Note: The tenant can claim an Input Tax Credit (ITC) on the GST paid on rent if the property is used for business purposes. This means the tenant can offset the GST paid against the GST payable on their own goods or services, making it a tax-efficient arrangement for businesses.
5. GST on Other Types of Properties (Industrial, Agricultural, etc.)
- Industrial Properties:ย GST on rent for industrial properties is the same as for commercial propertiesโ18%. This includes factories, warehouses, and other industrial facilities rented out for business operations.
- Agricultural Land:ย Agricultural land isย exemptย from GST, whether for sale or rent. No GST is levied on the sale or rent of agricultural land, as it is not considered an immovable property under the GST regime.Example:
- If you rent out a farm or agricultural land, no GST will be applicable.
6. Key Exemptions and Considerations
- Affordable Housing:
Residential properties classified under affordable housing schemes may qualify for aย lower GST rate. For example, the GST rate for affordable housing projects under construction can be as low asย 1%ย without ITC. - Input Tax Credit (ITC):
While residential property buyers cannot claim ITC when buying an under-construction property, buyers of commercial properties can claim ITC on taxes paid during construction, reducing their overall GST liability. - GST on Joint Development Agreements (JDAs):
In JDAs, where the landowner allows a developer to build properties on their land, the developer may charge GST on the value of the construction work. The landowner may have to pay GST if the developer charges GST on the sale of the constructed property.
7. Conclusion
GST has significant implications on the sale and rent of residential, commercial, and other types of properties in India. The tax treatment varies depending on the nature of the property (under construction or ready-to-move-in), its use (residential or commercial), and the applicable GST rates.
- For under-construction properties, GST is applicable at 5% or 12%, depending on the builder’s choice of ITC.
- Ready-to-move-in residential propertiesย are exempt from GST.
- Commercial propertiesย are subject to GST at 12% or 18%, depending on whether the property is under construction or already completed.
- Renting residential propertiesย for business purposes attracts an 18% GST, while residential rent for personal use is exempt from GST.
- Commercial property rentalsย are subject to 18% GST.
Understanding the nuances of GST in real estate transactions can help buyers, sellers, and tenants make informed decisions. Always consult a tax advisor or real estate expert to ensure compliance with the latest GST regulations in property transactions.
