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What is GST rate on affordable housing?
The GST rate on affordable housing is 1% (without Input Tax Credit) applicable to under-construction properties that meet the government's definition of affordable housing. This concessional rate was introduced in April 2019 to make home ownership more accessible for first-time buyers and lower-income segments.
Definition of Affordable Housing for GST Purposes
- Metropolitan Cities: Carpet area up to 60 sqm (645 sqft); property value up to ₹45 lakh.
- Non-Metropolitan Cities/Towns: Carpet area up to 90 sqm (968 sqft); property value up to ₹45 lakh.
- GST Rate: 1% (no ITC).
PMAY Linkage
Homes under PMAY (Pradhan Mantri Awas Yojana) that also meet the affordable housing criteria are eligible for both the 1% GST and the interest subsidy under the Credit Linked Subsidy Scheme (CLSS) making them doubly beneficial.
The 1% GST on affordable housing is one of the most significant concessions in Indian real estate taxation. Buyers of smaller homes priced up to ₹45 lakh benefit substantially from this rate compared to premium housing buyers.
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For many Indians, purchasing a ‘dream home’ tops their bucket list. Whether a modernized penthouse or a sprawling Victorian bungalow, every one of us desires a home that was crafted keeping us and our family in mind. Finding such a dream home is a difficult task. After a painstaking search, you finally find the house of your dreams, but to purchase it, you have to take out a home loan from a bank or any aggregator. Acquiring a home loan in India is an arduous and time-consuming battle itself. Currently, the home loan market in India is tremendous and has grown exponentially over the years. The home loan interests are at a 16-year low, with several banks and aggregators competing to provide the most lucrative options. Despite these developments, an average home-loan seeker has to bear a tedious loan approval process that can be demoralizing due to the number of hurdles. To overcome these hurdles, KuberX, a tech-based online loan aggregator platform, has implemented innovative solutions to turn your home loan searching process into an effortless one. What stands in the way of home loans? Long-drawn-out procedure for approval Getting to the end of the home loan process requires patience. Even with banks and aggregators offering pre-approved loans, you may find yourself with incomplete documentation, and a prolonged legal and technical verification process that stalls loan approval by weeks. Non-transparent payment process There is a lack of knowledge in most borrowers, due to which they are not vigilant enough while comparing and scrutinizing interest rates. Legal and technical costs ranging anywhere from 0.25% to 1% of the entire loan are sometimes concealed by banks in the processing charges. How does KuberX tackle these challenges? Provision of APFs An APF or approved project finance is a score significant for any project. To get an APF number, the property developer must submit all legal documentation relevant to the project like NOCs, Sale Deeds, Title Deeds, Approved Plans, etc. KuberX can help facilitate APFs from multiple finance institutions for real estate developers. This provision increases homebuyer purchasing capability and assures a minimum risk of payment on the loan. Financial consultation Since purchasing your dream home is a monumental decision, it is advantageous to have an unbiased financial advisor by your side throughout the process. KuberX provides you with sound financial advice, backed by insights, to select the right loan product. Loan disbursements KuberX is simplifying the home loan buying journey through loan disbursements. They are working as an aggregator of demand across real estate developers and individual customers for the banking system. Their expert team will coordinate with loan buyers for quicker sanctions and disbursements. End-to-end service For an individual, especially a first-time home loan seeker, the loan buying process can be intimidating. KuberX provides complete guidance and support throughout the journey. They have a complete understanding of the pain points of the customers and offer end-to-end support. From APFs to custom-made loans for your projects, they guide you through every step of the process. How KuberX works KuberX has made acquiring a loan a straightforward process through their platform. You only have to: Sign up - Sign up or register on the platform in seconds and share your loan requirements. Compare offers - Get customised opinions with their proprietary AI-enabled instant tool. Select offer - Choose one offer that best suits your home loan requirements. Relax - Just relax as they work on getting your home loan processed at the earliest. The real estate industry in India will continue its exponential growth and is projected to contribute around 18%-20% of the country’s total GDP. Since the home loan market is a part of the industry, it is also expected to boom along with the real estate industry. In a rapidly evolving landscape with complex dynamics, KuberX can be a trusted partner to help you seal the deal on your dream home. With their years of experience and expertise in the FinTech industry, KuberX wants to redefine the online loan aggregator ecosystem. Their associations with private, public banks, and NBFCs will aid them in tackling the prevalent challenges in the lending market.
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If you’re in a longer tenure loan (20+ years), you may not be utilizing the full benefit early on. To make the most of Section 80C home loan benefits: Consider making prepayments to increase the principal repaid. Opt for a shorter tenure (10–15 years) if feasible, as this increases the principal component in EMIs. Don’t solely rely on your home loan for 80C benefits — combine it with other tax-saving instruments, e.g., PPF, ELSS, and NSC to maximize savings. Eligibility criteria Not all home loans qualify for Section 80C deductions. To claim benefits: Loan must be from recognized lenders like banks, NBFCs, or housing finance companies. Only residential properties qualify. No deductions for under-construction properties, only after possession. Maximum deduction limit While ₹1.5 lakh sounds generous, it’s important to know that this limit is shared with other 80C investments, such as: PF (Provident Fund) contributions. ELSS (Equity-Linked Saving Scheme). Life insurance premiums. Tuition fees for children. If your limit is already exhausted with these, your home loan may not provide additional tax savings. Conditions for claiming the deduction Keep loan statements and repayment proofs ready for tax filing. You must be paying EMIs — if you default on payments, you cannot claim a deduction. Selling the property before 5 years nullifies previous deductions, and the total amount claimed gets added back to your taxable income for that year. Tax Deductions on Interest Payment (Section 24(b)) Section 24(b) lets you claim deductions on home loan interest payments, reducing your taxable income. The deduction limit depends on whether the property is self-occupied or rented out, and there’s even a way to claim interest paid before possession, provided certain conditions are met. Interest deduction for self-occupied vs. let-out properties For self-occupied homes, you can claim up to ₹2 lakh per year on interest paid. However, if construction isn’t completed within 5 years, this limit drops to just ₹30,000. For let-out (rented) properties, there’s no cap on interest deduction, but total house property losses (from one or more loans) are capped at ₹2 lakh/year for tax adjustment. Quick Tip????: The Income Tax Act doesn't stop you from holding multiple self-occupied properties. This means you can shift deductions strategically to the loan with the highest interest. Did you know? Even if you don’t charge rent (e.g., parents live there), it’s still considered let-out, allowing unlimited interest deduction — which can offset salary income too. Pre-construction interest deduction The total pre-construction interest is divided into 5 equal installments and claimed annually after possession. This deduction falls under the ₹2 lakh limit for self-occupied properties. It applies only if construction is completed within 5 years and delays beyond this reduce the deduction to ₹30,000 per year. Only interest qualifies! Principal repayment during the pre-construction period doesn’t get any tax benefits. Additional Benefits for First-Time Homebuyers First-time homebuyers get extra tax benefits under Sections 80EE and 80EEA, helping them save even more. These deductions apply over and above Section 80C and 24(b), making home ownership more affordable. Section 80EE: For loans up to ₹35 lakh Eligibility: First-time homebuyer with a loan up to ₹35 lakh and property value ≤ ₹50 lakh, sanctioned between April 1, 2016 – March 31, 2017. Deduction limit: Claim up to ₹50,000 per year on interest, over and above Section 24(b), until full loan repayment. Conditions: Only individuals (not HUFs) can claim, and the property must be self-occupied. Section 80EEA: Extended benefits under affordable housing Eligibility: First-time homebuyer with a property stamp duty value of ₹45 lakh or less, size limit of 60 sqm (metros) or 90 sqm (other areas). 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This ensures you don’t pay excess tax during the year. If you’re self-employed or haven’t shared the certificate with your employer, claim the deductions directly while filing your ITR. Use the correct ITR form (ITR-1 or ITR-2). For joint home loans, make sure you’re both a co-owner and co-borrower to claim deductions individually. Deductions are proportional to your share in the loan. Claim ₹1.5 lakh on principal (80C), ₹2 lakh on interest (24(b)), and extra ₹50,000 (80EE) or ₹1.5 lakh (80EEA) for first-time buyers. If your property is under construction, claim pre-construction interest in five equal installments over five years after construction is complete. Pro Tips to Maximize Home Loan Tax Benefits Time your loan strategically: Take your loan early in the financial year to maximize interest deductions under Section 24(b). Prepay principal before March to fully utilize the ₹1.5 lakh deduction under Section 80C. Optimize EMIs and prepayments: Higher EMIs or periodic prepayments reduce total interest costs while ensuring full tax benefits. Keep proper documentation: Maintain your loan sanction letter, interest certificate, and repayment proofs for smooth tax claims. Salaried individuals should submit these to their employer for TDS adjustments. Avoid Common Mistakes ❌ Taking a loan from an unregistered lender, which disqualifies you from claiming deductions. ❌ Missing out on pre-construction interest by not claiming it in five equal installments after possession. ❌ Selling the property within five years, which reverses your Section 80C deductions. ❌ Failing to split EMIs in a joint loan, reducing the potential tax savings for co-borrowers.
PropTech Pulse Editorial
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