The Government of India passed the announced the Goods and Service tax (GST) as a sole indirect tax throughout the country which would be a uniform tax. As of the year 2000, goods and services will be taxed at the following rates – 0.25%, 5%, 12%, 18% and 28%. While it still isn’t clear on how the GST will impact the market in the near future – if it will be beneficial to the citizens or not, a big question on how it will impact the real estate market has been posed.
With the Prime Minister of the country Narendra Modi having launched the “housing for all campaign”, giving people from below the poverty line and low-income families an opportunity to own a house for themselves and the recent slash in home loan interest rates, now is practically the best time for one to avail a home loan.
How the GST will affect the Real Estate Market
GST is not applicable in the case of properties that are ready to occupy while a GST of 12% is applicable in the case of residential properties that are under construction and which have not yet received an Occupancy Certificate (OC). The GST is applicable for charges that are associated with a home loan, including the processing fees. Processing fees are usually in the range of 0.25% to 1% of the home loan amount which will now have the GST also added to it.
Effect of GST on Home Loan EMIs
With more and more people looking to avail home loans due to the slashed home loan interest rates and the ease of availing home loans these days, for the next couple of months the focus would be on how the GST affects home loan EMIs.
Listed below are ways on how the GST will affect home loan EMIs:
- GST for home loans will have a standard rate of 18% throughout the country. Before GST came into effect, it was service tax of 15% which was applicable on home loans. The application of 18% GST will translate to consumers paying slightly more for their home loan.
- With the interest rate having being increased significantly higher, banks and lenders too will increase the interest rates added on home loans.
Applicability of GST on home loan
When you apply for a home loan, there are various charges, such as processing fees and legal costs, which are typically deducted by banks, housing finance companies, and other financial institutions. Previously, these charges were liable to service tax. However, the introduction of GST has brought about a significant change in the taxation structure. The expenses that were previously categorised under service tax are now governed under GST.
Home loan processing charges HSN code and GST rate
Processing fees and other charges levied on disbursing home loans fall within the category of financial and related Services, identified by the HSN code 9971 and subjected to a GST rate of 18%.
The following is an example of how GST is levied on the processing fees for a home loan:
| Property Value | Loan Processing Fee | Applicable GST Rate | GST Calculation |
| Rs.50 lakh | 1% | 18% | If home loan = Rs. 50 lakhs, Processing fee = 1% of loan amount = Rs. 50,000, GST @ 18% = Rs. 9,000. Total fee paid = Rs. 59,000 |
GST on other loan-related charges
GST on home loans also applies to various associated costs. These costs include prepayment charges, partial prepayment fees, and document handling charges. They can be either a fixed amount or a percentage of the loan. For example, in the case of a fixed-rate home loan, 18% GST will be imposed on a prepayment penalty of 2%.
FAQs
Is there GST on government housing schemes?
Yes, a GST of 1% is levied on government housing schemes.
Is GST applicable to late payment charges on home loans?
Yes, GST is applicable to late payment charges on home loans, whether a fixed fee or a percentage of the overdue amount.