housing loan

Everything to Know About GST on Housing Loan

‒ September 18, 2019 ‒ Leave your thoughts

The Goods and Services Tax (GST) amalgamated 17 indirect taxes like service tax, sales tax, VAT, entertainment tax, etc. into one. It also abolished multiple other taxation schemes such as entry tax.

The statutory tax rate for the majority of goods before the implementation of GST was 26.5%. Currently, most of the goods under the 18% tax slab. A housing loan also falls under the same rate.

Key stats at a glance

  • The article includes GST – 279.
  • A number of countries with GST- 160.
  • Members in the GST Council – 31.

Impact of GST on home loans

You will have to pay 18% GST on the following charges when availing a home loan –

  • Foreclosure fees – Applicable when you foreclose the loan before the tenor ends.
  • Part-prepayment fees – Applicable when you pay more than one EMI. Part-prepayment reduces either your loan EMIs or tenor.
  • Penal interest – Applicable when you fail to pay EMIs.

Note that individuals availing home loans with a floating rate of interest will not have to pay foreclosure and part-prepayment charges. These fees are only applicable on a fixed rate housing loan availed by individuals and floating-rate ones availed by non-individuals.

GST on properties

For completed properties

GST is not applicable on completed properties with a valid completion certificate.  Hence, buyers don’t have to pay any tax when purchasing such houses.

For under-construction properties

The 34th GST Council Meeting held on 19th February 2019 has made a few changes to GST being charged on properties that are currently under construction.

Non-affordable housing developers can either opt for a GST of 12% with no input tax credit (ITC) or 5% with ITC. Affordable housing developers can opt for a GST of 8% with ITC or 1% with the same.

Projects that begin after 1st April will adhere to the 5% and 1% GST with ITC as per the GST Council Meeting.

These GST rate cuts make it the best time to plan a new home, which might lower real estate prices.

What is affordable housing?

Affordable housing is properties constructed under schemes like the Pradhan Mantri Awas Yojana (PMAY), Rajiv Awas Yojana, Jawaharlal Nehru National Urban Renewal Mission, etc.

The PMAY brings several benefits and played a critical role in the affordable housing segment. The Credit Linked Subsidy Scheme (CLSS) component of PMAY offers housing loans with subsidized interest rates.

PMAY is available for families/individuals as per the following annual income gradients –

  • Economically Weaker Section (EWS) –Up to Rs. 3 Lakh.
  • Low Income Group (LIG) –Between Rs. 3 Lakh and Rs. 6 Lakh.
  • Middle Income Group I (MIG I) – Between Rs. 6 Lakh and Rs. 12 Lakh.
  • Middle Income Group-II (MIG II) – Between Rs. 12 Lakh and Rs. 18 Lakh.

EWS and LIG families can avail of  a maximum housing loan of Rs. 6 Lakh and an interest rate subsidy of 6.50%. The maximum carpet area for these two beneficiaries is restricted to 30 sq. m. and 60 sq. m. respectively.

MIG I families can avail a maximum loan amount of Rs. 9 Lakh and an interest rate subsidy on 4%. The maximum carpet area for them is 160 sq. m.

MIG II families can avail a maximum loan amount of Rs. 12 Lakh and an interest rate subsidy of 3%. The maximum carpet area for these families is 200 sq. m.

Note that the maximum tenor of home loans under the PMAY CLSS remains fixed at 20 years.

Individuals seeking to avail of financing must use a home loan EMI calculator to calculate their monthly installments before applying. They must also check the interest rates and charges applicable to the same.

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