Finance

How will GST Affect your Dream of Buying a Home?

Before the implementation of the Goods and Services Tax (GST), you had to pay multiple taxes. These included as many as 16 taxes which the GST has now replaced. If you purchased a home before GST, you had to pay as much as 15% in total taxes. These included VAT, stamp duty and registration charges, and service tax.

The new single tax regime subsumes all the prevalent taxes paid. As a result, the time and effort you would have to spend in dealing with the taxation procedures will reduce and you will also save money.

Prime Minister Narendra Modi has launched an ambitious “housing for all” campaign. The primary objective of this campaign is to enable low-income and below poverty line families to own homes. Several lenders have recently slashed the home loan interest rates, which makes it an ideal time to buy a property.

GST impact on real estate industry

From 1st July 2017, housing loan equated monthly installments (EMIs) and lease rentals are going to attract GST. However, GST will not be applicable to transactions involving the sale of land, home, or buildings. Builders and developers will no longer have to pay triple taxes, which will help to reduce the construction costs. However, home loan borrowers currently pay 5% VAT and 3.5% service tax. Borrowers will have to pay 18% GST in the new regime.

GST impact on home loan EMI

Housing loans will attract 18% GST across the country. VAT and service tax will be eliminated under the new tax structure. However, a higher GST rate may make the loans a little more expensive.

Before you evaluate the GST impact on housing loans, you need to understand the components that will be affected. The primary component of your EMI includes interest, which does not attract any service tax or GST. In addition, stamp duty paid on your loan documentation will not change because this levy is not replaced by GST.

Processing fees, which are a one-time charge levied when you take the loan, will slightly increase as GST of 18% will be applicable. However, this is a single time charge and will not significantly impact the loan. Lenders levy a penalty in case of EMI default or cheque return. This penalty will increase after the implementation of GST.

To summarize, all fees and charges recovered by the housing loan lenders will increase marginally by 3% from the previous rate of 15% as the GST applicable is 18%.

GST is said to be the biggest change in the tax structure since India became independent. The single tax regime is expected to bring in more transparency to the entire process of buying a home and availing of a loan. However, it is important you determine your home loan eligibility before applying. This ensures you are not disappointed and may avail of a loan at the earliest.