Due to the high cost of properties, many people who want to buy homes rely on housing loans. It lets people buy and move into the house of their dreams without depleting their financial resources. However, their affordability is impacted by numerous changes in the economy. Take the GST announcement, for instance!
The Indian economy experienced several alterations by implementing the Goods and Services Tax (GST). It brought the indirect taxation system together and simplified and targeted tax payments. Of course, it also affected the loan sector. The introduction of GST also resulted in notable changes to loan interest rates.
The Goods and Services Tax (GST) may affect the total amount of a home loan that you take out. It highlights that because the different types of loans (built, under-construction, and rehabilitation loans) are taxed in certain ways, these taxes are important in determining the overall cost of a home loan.
To provide homebuyers in the real estate market with greater openness, the GST was introduced in 2017. It states that GST applies to charges such as processing fees and legal costs related to housing loans, but not straight away to the loan sum, interest, or EMIs. This overview shows how crucial it is to think about taxes like GST. It should be taken seriously when figuring out how much it would ultimately cost to buy a property and transform it into a home.
Understanding the potential impacts of GST on your loan becomes essential when thinking about purchasing a property and applying for a home loan. The purpose of this post is to provide you with a thorough understanding of how the GST applies to housing loans.
GST Application for Home Loans
There are several expenses associated with applying for a house loan, including processing expenses and legal costs. These fees are normally taken by banking institutions, housing finance firms, and other financial firms.
These fees were previously subject to service tax. However, the tax structure has undergone a substantial alteration as a result of the implementation of GST. GST now governs the expenses that were formerly categorized under service tax.
GST will not be applied to the home loan amount in India. It does, however, cover the processing fees and additional costs levied by the bank or other financial organization to release the house loan funds.
GST: What Is It?
Value-added tax, excise duty, customs duty, purchase tax, service tax, and other indirect taxes have all been superseded by the goods and services tax. In July 2017, the Indian government implemented the Goods and Services Tax (GST) to standardize several indirect taxes. All goods and services, including travel, hotels and hospitality, electronics, investments, and shopping, are subject to this all-inclusive tax.
GST’s Implications on Home Loans
For fully constructed homes that are ready for occupancy, there is no GST. On the other hand, under-construction buildings that do not yet have an occupancy certificate would be subject to GST.
In the past, housing loan borrowers were required to pay a 15% service tax on the processing cost and other related costs. Nevertheless, under the new GST tax system, it will now be assessed at 18%. For example, GST will now be applied to home loan processing fees, which vary from 0.25% to 1% of the loan amount. Consequently, GST would be due if you were purchasing a home with a housing loan.
Even though the GST tax regime was first implemented in July 2017, it has since undergone several revisions and modifications.
Let’s Check out a Simple Example:
In addition to the above-mentioned processing fees of 0.25–1% of the loan amount plus relevant GST, house loan processing fees now have an 18% GST rate. If a loan of Rs. 40 lakhs gets granted, the processing charge would be between Rs. 10,000 and Rs. 40,000 plus a 15% service tax, amounting to between Rs. 1,500 and 1,600. As a result, the total comes to around Rs. 11,500–46,000.
This will amount to between Rs. 1,800 and Rs. 7,200 after GST, which is payable at the rate of 18% on the processing cost. Therefore, the total amount due in this instance will vary from Rs. 11,800 to Rs. 47,200.
GST ON DIFFERENT LOAN-RELATED CHARGES
In addition to the aforementioned, GST on home loans also applies to other loan-related costs such as prepayment charges, partial prepayment penalties, document processing costs, etc. These extra charges are typically either a fixed cost or a certain percentage of the loan sum.
For example, if you have a fixed-rate housing loan that you would like to prepay, the financial institution may charge a penalty for early repayment of up to 2%. In this case, GST of 18% will be added to the penalties as well as to all other loan-related fees and costs.
Best Home Loan Offers in 2024
| Bank | Loan Amount | Loan Tenure | Rate of Interest | CIBIL Score | Processing Fees | Foreclosure Fees |
| HDFC Bank Home Loans | 5.00 Lacs and above | 5 Years – 25 Years | 8.45% – 10% | 650 or above | 0.5% – 1% | 1% – 2% |
| Kotak Bank Home Loan | 20.00 Lacs and above | 5 Years – 20 Years | 8.75% – 10% | 700 or above | 0% – 0.25% | 1% – 2% |
| Bank of India Home Loan | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.75% | 675 or above | 0.5% – Rs.10000 | 1% – 2% |
| Bajaj Housing Finance Home Loan | 5.00 Lacs – 75.00 cr | 5 Years – 25 Years | 8.45% – 10% | 650 or above | 0.2% – 0.5% | 1% – 2% |
| PNB Housing Home Loan | 5.00 Lacs – 20.00 cr | 5 Years – 30 Years | 8.75% – 14% | 625 or above | 0.25% – 0.5% | 1% – 2% |
| Mahindra Finance Home Loan | 3.00 Lacs – 75.00 Lacs | 5 Years – 25 Years | 9% – 15% | 650 or above | 1% – 3% | 1% – 2% |
| Tata Capital Home Loan | 30.00 Lacs – 7.00 cr | 10 Years – 30 Years | 8.6% – 11% | 750 or above | 0.2% – 0.5% | 1% – 2% |
| Aditya Birla Home Loan | 25.00 Lacs – 25.00 cr | 5 Years – 25 Years | 8.9% – 11% | 675 or above | 0.5% – 1% | 1% – 2% |
| Federal Bank Home Loan | 50.00 Lacs – 20.00 cr | 5 Years – 25 Years | 8.5% – 10% | 675 or above | 0.5% – Rs.15000 | 1% – 2% |
| IDFC Bank Home Loan | 10.00 Lacs – 5.00 cr | 1 Years – 30 Years | 8.85% – 9.25% | 680 or above | 1% – 1.5% | 1% – 2% |
| ICICI Bank Home Loan | 50.00 Lacs and above | 5 Years – 30 Years | 8.6% – 10% | 700 or above | 0.25% – 0.5% | 1% – 2% |
| Standard Chartered Home Loan | 25.00 Lacs – 25.00 cr | 5 Years – 25 Years | 8.5% – 10% | 700 or above | 0.5% – 1% | 1% – 2% |
| SBI Bank Home Loan | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.4% | 650 or above | 0% – Rs.10000 | 1% – 2% |
| Bank of Maharashtra Home Loan | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 9.65% | 675 or above | 0.25% – Rs.500000 | 1% – 2% |
| Indian Bank Home Loans | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.4% | 675 or above | 0.25% – Rs.500000 | 1% – 2% |
| Union Bank of India Home Loan | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.8% | 675 or above | 0% – Rs.15000 | 1% – 2% |
| Central Bank of India Home Loan | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.4% | 700 or above | 0% – Rs.20000 | 1% – 2% |
| Bajaj Finserv Home Loan | 20.00 Lacs – 15.00 cr | 5 Years – 40 Years | 8.5% – 10% | 700 or above | 0.2% – 0.5% | 1% – 2% |
| L&T Finance Services Home Loan | 30.00 Lacs – 3.00 cr | 5 Years – 30 Years | 8.5% – 9.5% | 650 or above | 0.25% – Rs.10000 | 1% – 2% |
| IIFL Bank Home Loan | 5.00 Lacs – 50.00 Lacs | 5 Years – 25 Years | 8.9% – 14% | 650 or above | 1% – 1.25% | 1% – 2% |
Does GST Apply to Loans Under the Pradhan Mantri Awas Yojana (PMAY)?
Yes, there will be GST on your housing loan even if you use PMAY’s CLSS (Credit Linked Subsidy Scheme) to buy your first house. Anyway, regardless of whether you buy an already-built home or one that is still under construction, the GST on these loans is lowered to 8%.
Do All Lenders for Home Loans Have Processing Fees?
Lenders typically impose a processing fee for all loan types. It is not only for home loans. It’s referred to as administrative costs by some lenders.
Since home loans are expensive loans, the processing fee—which is often a set percentage of the loan amount—becomes rather expensive. But the processing charge can differ a lot.
WAYS to Reduce GST FOR Housing Loans?
Even if the GST rate on house loans is set between 18% and 12%, you can lower the overall tax amount you pay by assessing the processing fees that the lenders impose. The Goods and Services Tax applies to the processing charge and any additional charges that the lender imposes. Hence, GST is going to drop if the charges are lower.
Bottom Line
The GST has significantly altered India’s tax structure, with potential effects on housing loans. To properly navigate the housing loan market and make wise choices, borrowers must have a thorough understanding of the subtleties of GST and its impact on house loans.
Therefore, you are getting closer to being a smart borrower now that you have a complete understanding of how GST affects housing loans. When applying for a home loan, make sure to look into the processing fees and other costs offered by a few of the best lenders so that you can select the best one.
To avoid any problems down the road, be sure to look into the loan provider’s reputation, interest rate, and repayment options, in addition to all additional charges.