GST has a big part to play when it comes to paying EMIs for your home loans. GST on home loan can impact your home buying fairly. GST also referred to as Goods and Service Tax is a comprehensive or indirect tax system. This tax was replaced with other indirect taxes like VAT, excise duty, service tax, and so on. It is a multi-stage, comprehensive, destination-based tax that applies to each of your value add. It is one law for the domestic indirect tax that is valid for the whole nation.
This tax system was brought into effect on July 1, 2017. GST puts the taxation system uniformly in place. This aids real-estate dealers to be positive and transparent in their home-buying deals.
There are 3 components or taxes of GST. They are SGST, CGST & IGST. SGST is the state govt. tax and CGST are central govt. tax for an intra-state sale while IGST is Central govt. tax for sale done inter-state.
Goals of GST
This tax system was put in place to:
- Implement ‘One Nation, One Tax’
- Remove the taxes cascading effect
- Subsume several indirect taxes in the country
- To cease tax evasion
- To enhance the taxpayer base
- To implement improved distribution and logistics system
- To ease the online process for carrying out business
- For enhancing consumption and promoting competitive pricing
Benefits of GST
The primary benefit of GST is to eliminate the cascading effect of many indirect taxes that effect the price of the goods purchased. This way the price of the goods minimizes. Since GST is primarily driven by technology, the entire process is clear, transparent, and quick. It also integrates the nation with a single and uniform tax rate thereby eliminating the indirect tax limitations between the states.
GST on Home loan
So, what is the role of GST in a home loan or when you purchase a house? Though GST isn’t directly linked to the EMI of your home loan or the interest rates applicable, it surely applies to the other charges and the processing fee on the home loan.
How did GST change the interest rate of GST?
The vital aspect to keep in mind is that GST on Home Loan isn’t applicable on the houses which are ready to move in. They are subject to a tax of 12 percent on residential projects that are under construction. GST is applicable only on properties that haven’t attained their OC or Occupancy Certificate.
The current GST on Home Loan is 18 percent in India. This is a replacement for the service tax of 15 percent that was imposed earlier. GST is applicable on the processing fee which ranges from 0.25% to 1% of the overall loan amount for a home loan.
Calculation of GST on Home Loan
This calculation is quite simple. GST is 18 percent of the overall processing fee that is charged to you. For an under-construction site or property, it is 12 percent of the total processing fee.
For eg: If your loan amount is 50 lakhs, then the fee for processing comes in between Rs. 12,500- Rs. 50,000. 18% of this fee is Rs. 2,250 - Rs. 9000. Hence the overall payable amount on the loan ranges between Rs. 14,750 and Rs. 59,000.
Impact on the EMI- GST Home Loan
GST council minimized the GST rates to 5% for under-construction property and 1% for affordable housing. It was brought into effect on April 1, 2019. This eventually enhanced the flat's carpet area within affordable housing. At present, GST is 12 percent on all of the housing projects and 8 percent on affordable housing projects.
This enabled the home buyers to avail the possibilities of affordable housing and cherish their home-buying dream. This also boosts residential property sales and bears a lower tax on home buyers. This way the developers remain committed to providing and building affordable housing. The affordable housing is now set to Rs. 45L and with the GST on Home Loan prices, there shall be more sales in residential properties that fall in this range of budget. There is no additional cost for homebuyers under the GST.
GST on affordable housing
- Under the umbrella of the GST- goods and services tax, real estate is going to be taken into account.
- The rates of taxation for goods and services- GST are 0%, 5%, 12%, 18%, and 28%.
- On homes that are ready to move into, there won't be any GST fees.
- GST will be imposed on properties that are still being built. For home loans that are still in the building phase, the effective GST is 12%.
GST on Renovation or Construction of a House
Before the introduction of the GST, central excise duty, entry tax, and central sales taxes were imposed on the materials as well as service tax on the services utilized during construction. These were a significant portion of the contractor's expenditures. This was passed onto the customers ultimately.
Contractors would be required to pass on the advantages of the decreased tax burden to their customers under the GST-Goods and Services Tax regime. Contractors will be eligible for GST credits paid on construction-related materials and services.
The actual GST-Goods and Services Tax rate on the properties that are still under construction would be 12%, not 18%. It is a result of the falling price of land. The effective GST rate will be 12%, and as required by law, developers must pass on the advantages of input tax credits to purchasers.
The remodeling industry is subject to an 18% GST tax imposed by the Indian government. Yet, the land's worth has been subtracted from tax calculations. The effective rate drops to 12% as a result of the reduction in land value.
GST on EMIs of a Home Loan
It's going to be interesting to observe how the GST truly impacts home loan EMIs, even though most of it is merely speculation.
It will lower the equivalent monthly installments (EMIs) for borrowers of house loans for projects that are still under development. Home loans are subject to an 18% GST. Service tax and VAT are no longer in effect. Significant increases have been made in interest rates. Lenders and banks will raise interest rates on house loans.
Owning a home is a costly dream. However, we never give up on the idea of achieving it in the future. The pace of home purchases has accelerated today due to the abundance of home loan agreements and interest rate options. Affording to buy your dream house is now easier than ever thanks to the decrease in rates of GST on home loan. Select a dependable lending partner to take advantage of appealing loan possibilities at straightforward eligibility on a home loan to optimize your savings.