Did the implementation of GST have any impact on Home Loans?

GST has a big say in the Home Loan EMIs you pay. Read on to know how it has changed in the last few years
 

The Indian economic landscape witnessed a change when the Goods and Services Tax (GST) was introduced on July 1, 2017. In all these years, the indirect tax has undergone multiple changes. Compared to the previous cascading taxes, GST has managed to make real estate transactions more transparent, according to many reports.

These reports also state that because of GST on home loans, the offering has become slightly more costly for potential purchasers. Nonetheless, the central government took some steps to help people purchase properties during the pandemic, for example, by providing relief with a decreased GST on home loans.

Take a quick look at the points below and learn more about GST – on home loan processing fees, current GST rates on home loans, GST on home loan interest and how to calculate GST on a home loan.

How has GST changed the Home Loan interest rate?

The most important thing to remember is that home loan GST does not apply to houses that are ready to move in. Under construction residential projects, on the other hand, are subject to a 12% tax. It applies to properties that have not yet gotten their Occupancy Certificate (OC). 

The present GST rate on home loans in India is 18%, replacing the 15% service tax that was formerly in existence. You must pay GST on the processing charge for a house loan, typically 0.25% to 1% of the total loan amount.

If you are worried about home loans being out of your reach, you can reach out to IDFC FIRST Bank. You can apply for a loan at IDFC FIRST Bank and use its home loan calculator to get a clear picture of how much every variable will cost you. Also, you can use the IDFC FIRST Bank’s Mobile Banking app to stay updated see how rates are changing. The app will give you a clear picture of the market scenario.

Effect of GST on Home Loan EMI
 

As of April 1, 2019, the GST rate on under-construction flats has been decreased to 5%, while the government reduced the rate on affordable housing to 1%. Reduced taxes are expected to boost demand and allow developers to create more affordable homes.

A deeper look at under-construction homes
 

Before GST, the contractor's charges used to have a high incidence of high Entry Tax, Central Excise Duty, and Central Sales Taxes on materials, as well as Service Tax on services provided during the construction process. All these were passed on to the customers.

The good news is, contractors are now required to pass on the advantages of the lower tax burden to customers under the Goods and Services Tax regime. Contractors can also claim GST paid for services and supplies used in the construction process. Contractors also need to apply for GST registration and complete GST filing before collecting payment from the customers.

On under-construction properties, the net Goods and Services Tax (GST) rate is 12%, not 18%. It is due to the decrease in land costs. The Government of India has announced an 18% GST on the renovation industry and excluded the worth of the land from the tax calculation. The effective rate has gone down to 12% due to the reduction in land value.

These are some facets of GST and its impact on home loans. In coming days, the economic landscape can bring in lot of changes. Therefore, it is necessary to keep an eye on the market and keep yourself abreast with the latest updates.

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