GST on Real Estate – Impact on Homebuyers & Developers

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GST on Real Estate – Impact on Homebuyers & Developers

Real estate is one of the biggest contributors to India’s economy, and with the introduction of the Goods and Services Tax (GST), the sector has undergone significant changes. Homebuyers, real estate developers, and investors are directly affected by GST because it influences property prices, project costs, and overall demand in the housing market.

In this blog, we will understand GST on real estate, its impact on homebuyers and developers, benefits, challenges, and the way forward.

GST on Real Estate – An Overview

Before GST, multiple taxes were levied on real estate transactions, such as:

  • Value Added Tax (VAT)

  • Service Tax

  • Stamp Duty & Registration Charges

  • Various state-level taxes

This often created confusion and double taxation. With GST implementation in July 2017, most indirect taxes were subsumed into a single tax structure.

Currently, GST is applicable on:

  • Under-construction properties

  • Works contract services

  • Affordable housing projects

Note: GST is not applicable on the sale of completed properties or resale properties. However, stamp duty and registration charges are still payable separately.

GST Rates in Real Estate

The Government reduced GST rates in 2019 to make housing more affordable. The current rates are:

  • 1% GST on Affordable Housing (without Input Tax Credit – ITC)

  • 5% GST on Non-Affordable Housing (without ITC)

  • 8% GST on Affordable Housing under Credit-Linked Subsidy Scheme (CLSS)

  • 12% GST (earlier) on under-construction properties – now reduced to 5%

This simplified structure has been welcomed by both developers and buyers.

Impact of GST on Homebuyers

✅ Positive Impacts:

  1. Simplified Tax Structure – Earlier multiple taxes confused buyers; now GST has replaced most of them.

  2. Lower Prices for Affordable Housing – With just 1% GST on affordable housing, buying a home has become easier for middle-class families.

  3. Transparency in Pricing – Developers must disclose GST charges clearly, reducing hidden costs.

❌ Challenges for Buyers:

  1. No ITC Benefit to Buyers – Developers cannot claim ITC under the new scheme, and the cost is indirectly passed on to buyers.

  2. Stamp Duty Still Applicable – Despite GST, buyers must pay stamp duty and registration separately, increasing the final property cost.

Impact of GST on Developers

✅ Positive Impacts:

  1. Streamlined Taxation – Developers earlier paid multiple taxes (excise, VAT, service tax, etc.); GST has simplified compliance.

  2. Boost to Affordable Housing – Lower GST rates on affordable housing increase demand, benefiting developers.

  3. Increased Buyer Confidence – GST ensures more transparency, which can attract more customers.

❌ Challenges for Developers:

  1. Loss of Input Tax Credit (ITC) – Under the new scheme, developers cannot claim ITC on raw materials (cement, steel, etc.), increasing project costs.

  2. Higher Burden on Construction Materials – Key inputs like cement attract 28% GST, making construction costlier.

  3. Cash Flow Issues – Developers need to manage working capital better since ITC benefits are restricted.

GST on Real Estate – The Way Forward

The introduction of GST has brought clarity and uniformity in real estate taxation. While buyers benefit from lower rates and transparency, developers face challenges due to the withdrawal of ITC.

For long-term stability:

  • A review of input tax credit rules is needed to ensure developers don’t suffer cost burdens.

  • Reduction in GST rates on construction materials can make projects more viable.

  • A single-window taxation system, including stamp duty, would further ease transactions.

Conclusion

The impact of GST on real estate is mixed. For homebuyers, it has reduced the tax burden and simplified the buying process, especially for affordable housing. For developers, while taxation has become more transparent, the loss of ITC and high raw material costs remain hurdles.

Overall, GST has moved India’s real estate sector towards greater transparency, accountability, and buyer confidence. With some reforms, it can further boost housing demand and support the government’s vision of “Housing for All.”

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