GST Impact on Home Loans

If you want to have a clear understanding of GST on home loans, then you must always keep some important factors in your minds such as GST on home loan interest rate and the GST on home loan EMIs. There has been a sizable effect of GST on home loans as per several experts. Previously, for housing loans, service tax was charged at 15% which has now come up at 18%. This rate will now be applied to home loan processing fees and other charges.

The processing fees are usually between 0.25-1% of the loan amount + GST which has been increased now. However, it applies only in the case of ready-to-move-in homes. The slab is 18% for ready-to-move-in houses whereas it is 12% for under-construction homes.

Let us understand this with the help of a simple example-

GST has now become 18% and home loan processing fees, as mentioned above will be charged between 0.25-1% of the loan amount plus applicable GST. Suppose a loan amount of Rs. 40 lakhs is taken, the processing fee will be thus Rs. 10,000- 40,000 +service tax of 15% on the processing fee which is Rs. 1,500 to 1,600. Thus, the total comes out to be between Rs. 11,500-46,000. With GST being charged at 18% on the processing fee, this will come in between Rs. 1,800 to 7,200. Thus, the total payable in this case will change somewhere between Rs. 11,800 to 47,200. 

Effect of GST on Home Loan EMIs

The given-below are some of the ways how the GST will affect your home loan EMIs:

• GST for home loans will have a standard rate of 18% throughout the country. 
• From July 1st, VAT and service tax will not be charged anymore as earlier, but with the GST significantly higher at 18%, home loans might just get a little more expensive for borrowers.
• However, for those individuals who have taken home loans for under-construction properties, the EMIs will be cheaper.

While most of it is just speculations, it will be interesting to see how the GST affects home loan EMIs. How much financial institutions decide to charge on home loan EMIs will be what the real estate market will be focused on in the coming months.

Impact of GST on the Real Estate Market

From July 1,2017, Home loan EMIs availed to construct a house as well as rent and lease (residential complex, industrial, commercial) aspects are going to attract the new goods and service tax. However, the introduction of the new tax regime i.e. GST, sale of land, houses, or buildings will not have this new indirect tax attached to it. For builders/construction, the GST tax will save them from the triple tax which they are paying now. It will also reduce the cost of construction. For home loan borrowers, a fixed GST of 18% is applicable, which is more than the current VAT of 5% for construction materials and the 3.5% service tax.