The Goods and Services Tax (GST) replaced 17 different indirect taxes, such as service tax, sales tax, VAT, and entertainment tax, with a single tax system. It also eliminated other tax schemes like the entry tax. Previously, most goods had a statutory tax rate of 26.5%, but now, most fall under the 18% GST rate, including housing loans.
Here are some key statistics:
– GST Act mentions: 279 times.
– Countries with GST: 160.
– GST Council Members: 31.
Impact of GST on Home Loans:
When taking out a home loan, you’ll need to pay 18% GST on certain charges:
– Foreclosure Fees: Charged if you pay off the loan early.
– Part-Prepayment Fees: Charged when you make extra payments beyond your monthly EMI, which can lower either your EMI or loan term.
– Penal Interest: Charged if you miss paying an EMI.
It’s important to note that if your home loan has a floating interest rate, you won’t need to pay foreclosure and part-prepayment fees. These fees apply only to fixed-rate loans for individuals and floating-rate loans for non-individuals.
GST on Properties:
– Completed Properties: GST is not charged on properties with a valid completion certificate, so buyers don’t pay extra tax.
– Under-Construction Properties: Changes made during the 34th GST Council Meeting on February 19, 2019, affect under-construction properties. Non-affordable housing developers can choose between a 12% GST without input tax credit (ITC) or 5% with ITC. Affordable housing developers can opt for 8% with ITC or 1% without it. Projects starting after April 1 will follow the 5% and 1% GST with ITC as per these changes. These reduced rates might make it a great time to buy a new home, potentially lowering property costs.
What is Affordable Housing?
Affordable housing refers to properties built under schemes like the Pradhan Mantri Awas Yojana (PMAY), Rajiv Awas Yojana, or the Jawaharlal Nehru National Urban Renewal Mission. PMAY offers significant benefits, including the Credit Linked Subsidy Scheme (CLSS), which provides housing loans at subsidized interest rates.
PMAY eligibility is based on annual income:
– Economically Weaker Section (EWS): Up to Rs. 3 Lakh.
– Low Income Group (LIG): Rs. 3 Lakh to Rs. 6 Lakh.
– Middle Income Group I (MIG I): Rs. 6 Lakh to Rs. 12 Lakh.
– Middle Income Group II (MIG II): Rs. 12 Lakh to Rs. 18 Lakh.
EWS and LIG families can get loans up to Rs. 6 Lakh with a 6.50% interest rate subsidy, with a maximum carpet area of 30 sq.m. and 60 sq.m., respectively. MIG I families can borrow up to Rs. 9 Lakh with a 4% interest subsidy, with a maximum carpet area of 160 sq.m. MIG II families can borrow up to Rs. 12 Lakh with a 3% subsidy, with a maximum carpet area of 200 sq.m.
The maximum loan term under the PMAY CLSS is fixed at 20 years. Before applying for a home loan, individuals should use an EMI calculator to estimate monthly payments and check applicable interest rates and fees.
