A home of your own is an expensive dream. And yet, we do not stop from dreaming about it and accomplishing it some day. With uncountable deals on home loans and availability of interest rates to choose from, the speed of home-buying today has quickened.

Now, there’s another reason for home-buyers to rejoice - The Goods & Services Tax (GST) Council has reduced the GST rates for under-construction flats to 5% and affordable housing to 1%, with effect from 1st April, 2019. It also increased the carpet area of flats under affordable housing. Currently, GST on all housing projects is 12% and affordable housing projects are taxed at 8%. This GST rate-cut has made home-buying affordable and opened the door of possibilities for home-buyers to fulfil their long-cherished dream.

Additional Read: How to calculate your home loan eligibility?

After the announcement being made on 24th February, 2019, there might be a boost in the sale of residential properties as the lower tax burden on home-buyers will push up demand in the segment which will let developers stay committed to build more affordable homes. The GST Council’s decision will prove to be a benefit for new buyers & also for those buyers who are currently on construction-linked payment schemes. With affordable housing now being defined within Rs 45 lakh budget, more properties qualify for the sweet spot category. The GST cut, coupled with this critical change in definition, will induce more sales in homes falling in this budget range.

Before discussing the impact of the GST on home loan costs, it is crucial to interpret the elements dependent on GST. The most important aspect of taking a home loan is the interest rate on the money which will not change, as service tax or GST doesn’t play a role on it. Likewise, as stamp duty is not subsumed under the GST, stamp duty charged in connection with the documentation of the home loan will not change with the GST.

There’s nothing that will stop a home-buyer to convert the thought of buying a house into action with the GST rate-cut to as low as 1%. Each one is eligible to make the most of this opportunity on purchase of home and move to a new abode of their own.

GST Effect on Home Loan EMIs in India

GST on home loan does not directly influence the interest rate or the equated monthly instalments (EMIs) of your home loan. Nevertheless, processing fees and other levies imposed on home loans are subject to GST. Before GST, a service tax of 15% was levied on home loans, but the current GST rate on home loan has now been raised to 18%.

How to calculate GST on Home Loan

Calculating GST on home purchase is a relatively uncomplicated process. As GST on home loans is levied on the processing fee of your housing loan, you need to compute 18% of the total amount charged to you. However, when it comes to under-construction properties, the calculation is slightly different, and you must calculate the home loan interest rate today as 12% of the entire processing fee.

Impact on Construction or Renovation of a House

Reducing the housing GST rate (Goods and Services Tax) on home loans can significantly impact the construction or renovation of a house in India. This reduction in GST has made it more affordable for individuals to undertake construction or renovation projects on their homes. The lower GST rates have also made it easier for individuals to apply for home loans and meet the financial requirements of their projects.


The reduction in the home GST rate for under-construction properties and affordable housing in India has made home-buying more affordable and accessible to a wider range of individuals. Home loan interest rate today has also led to a boost in demand for residential properties and a positive impact on the construction and renovation industry.

Additional Read: The impact of GST Rate cut on the housing sector in India

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.