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

home loan emi

The Goods and Service Tax (GST) law was implemented on 1st of July, 2017, in order to create a uniform tax structure. Approved in the Lok Sabha on March 29, 2017, the GST Tax Law is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition.

Since the implementation, the entire country has been trying to understand this process which replaces multiple levels of taxes and revolutionizes the way we file our taxes.

Aspects like home loan EMIs of under construction houses (along with the purchase) to rental stays, to leasehold are about to attract GST on real estate, which will indirectly impact the final price for a home buyer.

Home loans help you to achieve your desired home goal but the calculation of your home loan EMI and the tax benefit that you can avail on it might be confusing at times. But, by using a tax benefit calculator you can get an informed idea about the ratio of the principal amount to the interest due.

Let us understand how GST can have an impact on Home Loan EMIs:

  • Applicability:

As per rules, the applicability of GST for home loans will be at a consistent rate of a minimum of 18%. This will thus affect the interest rate which now will be more than the current one when it comes to the real estate sector. GST law is applicable to both the center and the states. Prior to July 1, 2017, Service tax and VAT had been the two main levies when it came to real estate, which now will not be the same.

  • Interest rates:

The introduction of the high interest rate in accordance with the application of GST on a home loan is expected to have an impact on home loan interest rates charged by housing finance companies. As stated earlier, features such as rental and the lease procedure will be affected under GST. As far as purchasing a property and Home Loan EMIs are concerned, more amount of people would like to opt for a Home Loan as they would want to avoid paying GST of 18% through rents and leased lands. Visit the Home Loan Interest Rates Page to know more.

Although, there is no clarity so far, the real estate sector does have disputes concerning the tax rate and the base on which it would be charged regarding the Home Loan EMIs.

The real estate sector is expected to remain the same with certain developments brought in by GST in the long run.

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