ON HOME LOANS

Before we proceed, it is critical to understand the components that will be impacted by the increased GST rates. When you take out a house loan, you must pay interest on that money, which does not alter because there is no service tax or GST on it. Similarly, any stamp tax levied in conjunction with the paperwork of the house loan would remain unchanged, as stamp duty is not included in the GST. So, does it imply your house loan will be unaffected? No, it would only have a little impact on your mortgage. Let's see how it goes. Aside from the cost of the house loan, there are various additional expenses that you must pay to your bank or lender, such as the processing fee, advocate fees, appraisal fees, and so on. Under GST, home loan services will now be taxed at 18%, up from 15% previously. This one-time extra charge would result in a 3% increase in your home loan. Assume you have a loan of Rs. 30 lakhs and want to see how GST affects the processing fee:

Processing Fee = 0.25 - 1% of the first 30 lakhs = Rs. 7,500 – 30,000

Prior to GST = 15% (service tax) on Rs 7,500–30,000 = Rs. 1,125–4,500

After GST (18% on Rs 7,500–30,000) = Rs. 1,350–5,400

Marginal Effect = Rs. 225 – 900

As you can see from the example above, there is a small rise in the cost of your house loan following the GST. The processing charge, which is normally 1% of the loan amount and is capped at Rs.10,000 or 20,000, varies from person to person based on the borrower's profile, income, and loan type. In addition, some PSU banks, such as SBI, levy assessment and legal costs, which would rise marginally Prepayment costs for MCLR-linked house loans should not be an issue because these loans do not charge for this service. A fixed-rate house loan, on the other hand, does, which means prepayment costs will now fall within the 18% GST category rather than the prior 15% service tax level. Again, lenders can charge you for any EMI default, whether due to a returned cheque or an ECS return, for which you must pay the 18% GST. As a result, under the new GST regime, you would have to pay an additional 3% tax on any fee collected by lenders. And when all of these little expense increases are factored in, the house loan will undoubtedly rise.

GST on under-construction property

Under the government's updated directive, under-construction properties would be taxed at 18 percent, which comprises 9 percent SGST and 9 percent CGST. The government has also permitted a deduction for land value equal to one-third of the total amount paid by a developer, resulting in an effective tax rate of 12%. It's reasonable to claim that some houses are already under development with existing purchasers at this point in time. Then there will be some housing developments that will begin soon in the case of ongoing projects, a builder would have already paid some taxes in the form of excise, VAT, and state entrance tax, as well as spent money on raw materials required for the entire project. When purchasing such properties, it is essential to consider the stage of building. If the project is nearing completion and significant costs have already been incurred prior to the implementation of the GST, very little input credit will be available and very little gain will be passed on. More advantages can be passed on if the initiative is still in its early stages. Depending on the stage of building of your property, you may observe no change in cost or a modest adjustment of roughly 1-3 percent once input credits are deducted. However, price-change changes would not be visible for another six months. As a result, if you acquire flats in developments that are less than 60% completed, you will benefit more. As a result, you may have to pay less to the builder, resulting in a reduced house loan. However, the cost difference is likely to be small, but having 2-3 lakhs less on your shoulders and a cheaper EMI is obviously wonderful news for everyone.