News Analysis

Home buyers should avoid projects nearing completion to escape higher EMI burden

RADHIKA MERWIN | Updated on January 11, 2018 Published on July 04, 2017


These projects are likely to cost more due to unavailability of entire input tax credit

With service tax of 15 per cent being replaced by GST of 18 per cent, there has been a hullabaloo over home loan EMIs going up post-GST. To set the record straight, service tax was never levied on EMI, and hence it will not be taxable under GST. So, your home loan EMI will not go up under GST on this count.

But given that prices of near-completed projects may inch up post-GST, higher EMIs on such properties can pinch borrowers. Those looking to buy a home now can stay clear of such projects, until further clarity emerges.

Earlier, service tax and VAT of 5-6 per cent were levied on the sales value of the property. This now gets subsumed into the GST rate of 12 per cent. At first glance, the tax incidence under GST may appear higher, leading to higher property prices.

However, under the earlier regime, a plethora of Central and State indirect taxes — Central Excise Duty, VAT and entry tax, among others, on construction material — was borne by the builders, which was then passed on to the customers.

Under GST, full input tax credit would be available for offsetting the headline rate of 12 per cent, bringing down the effective rate to around 5 per cent, a tad lower than the rate applicable under the earlier structure.

Hence, net on net, home loan borrowers will not see a significant impact on their EMIs. But those looking to buy now need to be wary of projects that are near completion (say 90 per cent complete).

While ready-to-move-in property has been kept out of the ambit of GST, under-construction projects fall under the purview of GST and will be taxed at 12 per cent post July 1.

But since the construction is nearly done, experts believe that builders may not be able to claim input tax credit on the amount spent thus far on these projects. In effect, such projects may see prices move up, if the builder chooses to pass on the higher tax burden to customers.

Hence, with the underlying loan requirement going up for these projects, borrowers may be saddled with higher EMIs.

However, market players are still awaiting specific details on the treatment of input tax credit for almost completed projects. For those looking to buy a home now, it may be best to avoid such projects, until more clarity emerges.

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Published on July 04, 2017
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