With high real estate prices, a substantial number of people wishing to buy a house rely on home loans. It helps them move into their dream home without draining their savings. However, many economic changes affect their affordability. For example, the announcement of GST!

The introduction of Goods and Service Tax (GST) brought various significant changes in the Indian economy. It not only unified the indirect taxation system but also made the payment of taxes streamlined and focused. Naturally, the loan sector was not untouched by it. With the introduction of GST, there were significant changes in the loan EMIs too.

If you have a home loan or are planning to avail one, it would be beneficial for you to know the impact of GST on your home loan.


What Is GST?

Goods and services tax is an indirect tax that has replaced many indirect taxes like excise duty, customs duty, value-added tax, service tax, purchase tax, etc. The Indian Government introduced GST in July 2017 to bring uniformity in the various indirect taxes. It is a comprehensive tax levied on all goods and services, be it shopping, hotels and hospitality, travelling, investments, electronics, etc.


Impact of GST on Home Loans

There is no GST applicable on ready to move finished houses. However, GST would be applicable on under-construction properties, which have not received the occupancy certificate. 

Earlier, the home loan borrowers had to pay a service tax of 15% on processing fee and other charges associated with home loans. However, now it will be levied at 18% under the new tax regime of GST. For instance, processing fee on home loan ranges from 0.25% to 1% of loan amount will now be levied with GST. Therefore, if you are buying a house through a housing loan, you would need to pay GST on it.

Though the GST tax regime was introduced in July 2017, there have been various amendments and updates in the same. The GST rates were further reduced at the meeting held on 1st April 2019. As per the latest amendments, the GST for under-construction property was reduced to 5%, while the GST for affordable housing dropped down to 1%. There is no GST for the purchase of a plot of land. Moreover, Government housing schemes have been charged at 1% GST.


Effect on Home Loan EMIs

With the introduction of GST, the consumers might need to pay more for availing a home loan.

There could be an increase in the home loan EMI, as banks and financial institutions might further increase the interest rates.

The goods and service tax is a unified taxation system that aims at eliminating the multi-tax system and makes indirect taxation easier. It applies to various products and services, including housing loans. Therefore, you must be aware of its different aspects as the changes in GST can bring a corresponding modification on home loans. Once you understand the GST implication, check your documents and home loan interest rates and apply for home loan. 

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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.