How will the introduction of GST affect Home Loan EMIs in India?

GST and its impact on home loan EMIs

Real estate is considered the most tangible, significant asset you can ever invest in. It’s no wonder that despite rising real estate rates, people continue to invest in different kinds of property. Most people, however, can only buy property by taking on a loan. Although the loan can be repaid in affordable EMIs (equated monthly instalments) one has to bear a lot of upfront expenses – down payment, processing and administrative fees and other such charges. On top of these mandatory expenses, borrowers also need to pay a mandatory tax – the Goods and Services Tax, simply known as GST. So here’s all you need to know about GST impact on home Loan EMI.

The effect of GST on everyday expenses in general and real estate investments in particular

The Government of India introduced the GST law in July 2017, with the intention of creating a uniform tax structure and eliminating the multiple different taxes payable. This newly implemented tax structure is a comprehensive, single tax that is levied by replacing all the other different cesses and taxes (VAT, Central Excise Tax, Service Tax, Octroi Tax, Krishi Kalyan Cess, Swachh Bharat Cess etc.) paid for all kinds of financial transactions. This new tax is levied on all goods and services – from shopping, eating at restaurants, investments, mobile phones, hotel stays etc.  

The amount that you pay as GST differ – while some goods and services enjoy low taxes, you need to pay more for others. You will have to pay GST on home loans too. If you are a potential real estate investor you need to know about GST impact on real estate market and home loan EMIs. The GST you pay on property investments also depends on the city and state you are residing in, making it a destination-based tax system as well.

The implementation of GST on real estate investments

GST impact on real estate market is something that all real-estate investors need to pay attention to. Whether you are purchasing a home by taking on a loan or buying it from your savings, all property investors need to pay GST.

The effect of GST on home loans and EMIs has indeed been sizeable. Earlier, one had to pay a service tax of 15% while taking on a home loan, which was later revised to 18% GST when this new tax regime was introduced in July 2017. However, Since April 2019, the Government of India has significantly reduced the GST rates even further. These reduced rates have made it even easier for new borrowers to take on home loans and become property owners.

GST rates and real estate investments

As of April 2019, the Government of India has modified the GST regime significantly. The current requirements and rates of GST on real estate investments are as under:

• Every single person investing in real estate now comes in the GST net and must pay the necessary taxes associated with property investments
• Currently, the GST on all residential projects is 12%. This rate is applicable only on ready-to-move-in properties. The government has reduced this GST rate to 12% from the previous 18% GST applicable.
• Such is the GST effect on home loan EMI that people investing in under-construction properties, who previously had to pay GST of 12%, now have to pay a minimal GST amount of 5%.
• Investors purchasing homes under the Pradhan Mantri Awas Yojana (PMAY) “Housing for all” scheme and other such government housing schemes can receive further exemptions i.e. reduced GST rates on investments. Such people have to pay a small 1% GST (as opposed to the former 8% GST) while investing in government housing schemes.

As per government regulations, developers or builders are obligated to pass on or provide the benefit of ITC (Input Tax Credits) to buyers investing in real estate.

Final Word: The Government of India introduced GST in order to eliminate the complex, multi-tax payment system. Although the GST regime is simple to understand with regards to taxes paid on daily expenses, it is quite different with regards to loans – particularly home loans. As such, you must understand GST effect on home loan EMI before you take on the loan. Similarly, you should be aware of the impact of GST on investment costs before buying property by dipping into your savings or taking a loan.

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