If you are looking to avail of a home loan sometime soon, you should definitely possess a thorough understanding of how GST impacts home loans in India. GST is levied on the sale, consumption and fabrication of all kinds of services and goods. The four tax brackets are 5%, 12%, 18% and 28% for several kinds of services and products. Prior to GST, real estate developers and even homebuyers were required to fork out several state and central charges including registration tax, stamp duty, VAT and service tax. Buyers of properties under construction had to take care of all these taxes while stamp duty and registration charges were imposed on properties which were ready to move into.
Post GST (which does not include ready to move in properties and those residential housing schemes under PMAY), under construction properties will be taxed at 18% which applies to 2/3rds of the property value. The remaining cost is considered to be the land value. The actual tax rate will stand at 12% excluding registration and stamp duty. Real estate developers can get benefits from input tax credits which can be passed onto buyers. Interest on home loans is payable on the principal loan amount. Additionally, advocate, property valuation and processing charges are paid by borrowers. The services for home loans were taxed at 15% earlier and this has now gone up to 18% and hence loan costs will increase by 3% overall. GST does not apply in case of any MCLR home loan prepayment charge but for home loans with fixed rates, in case of prepayment fees, they will have 18% as taxes instead of 15%.
Real estate developers, however, will be free from multiple levies and taxes. Cement is presently taxed at 28% while iron rods and pillars are taxed at 18%. Sand-lime bricks and fly ash bricks are taxed at 5%. Overall, developers stand to gain from the GST regime. GST does not include affordable housing schemes as well. Home Loans, however, will be slightly more expensive in the new regime.