The wait for GST finally ended on 1st July 2017, when PM Modi announced it in the hall of Parliament. The announcement of Goods and Services Tax (GST) was a life-changing decision for the Indian economy. It so affected that the price of each commodity hipped overnight, then be it beverages or anything else. The impact was also seen on loans. Previously where the newspapers were flooded with the news of low Home Loan rates, the situation drastically changed – flashing the GST news. Each economist placing his/her opinion about GST and its effects. Although GST will improve the economic situation of India, it is surely leaving a huge impact on the common man’s pocket.
Coming to Home Loans, the Reserve Bank of India (RBI) had managed to delight the Home Loan buyers by cutting down the repo rates by 0.25 basis points. Also, the launch of “Housing for All” campaign had encouraged many families having a low-income to bring their dream home into reality. Wherein, the rates on all Home Loans had dropped down, so now the situation seemed perfect to buy a house. Perhaps, the site has changed with the arrival of GST. Many Home Loan buyers have paused and have held their decision of buying a house.
Effect of GST on Real Estate Market:
The Post GST effect is not only seen on loans and other commodities, but the real estate sector is equally affected. The Home Loan EMI’s availed for construction purpose or a rental aspect has the impact of GST too. Whereas, the sale of land, building or house won’t have the impact of GST on them. Perhaps, considering the developers and builders, the GST has saved them from paying the triple tax. Furthermore, the Home Loan buyers have to pay a fixed Goods and Service Tax of 18%, which is apparently more than the current VAT of 5% and service tax of 3.5%.
Effect of GST on Home Loans:
Previously, where many were grabbing the opportunity to buy a house due to low Home Loan rates, the arrival of GST has made people hesitant about availing a Home Loan. As the role of GST has rolled out, the taxations levied on all loans have increased from 15% to 18% drastically. This overnight change has made loans price a little high. Although, the increase in tax rate is the same for all loans they might still vary in some aspects.
The GST effect on Home Loans is a bit tricky to understand, wherein, the interest rates are sloping down, and the taxes are increasing significantly at the same time. What you should know here is, the changes occurred in the processing fees. Aforementioned, previously the Home Loan buyers had to pay 15% processing fee, which has changed to 18%. For instance, earlier you had to pay a processing fee of INR 6,250-25,000 plus the service tax of INR 937.50-3750 for a loan amount of INR 25 lakhs. So, eventually, you had to pay INR 7,187.50-28,750. Whereas, including the GST you will now have to pay a processing fee of about INR 7,375-29,500.
However, prepayments are concerned, there are no such charges applied on floating Home Loan rates. Earlier, the fixed-rate Home Loan was charged 2%-3% of principal outstanding plus the service tax about 15%. Whereas, post-GST, the principal outstanding is constant, but the tax has increased about 18%. Now, this won’t affect the Home Loan payment much. Thus, there should be no such hesitation while applying for a fixed-rate Home Loan.
Although post-GST there has been some increase in the processing fee, the Home Loan rates are still significantly low. In case, if you delay in borrowing just because of the impact of GST on Home Loan then you might end up missing the affordable interest rates. For now, the current scenario is the best to invest in a housing property despite the post-GST effect.