GST on Home Loan: What Mumbai Buyers Actually Pay

GST on home loan is one of the most Googled phrases in Indian real estate, and it is built on a misunderstanding. GST does not apply to the loan itself. It applies to the property, and only under specific conditions. Knowing this distinction upfront changes how a buyer plans their finances.

Here is what to know before reading further:

• Loan principal and EMIs sit outside GST entirely, though processing fees attract 18%.
• Purchase of under-construction properties involves GST at 5% on the basis of the agreement value or 1% on affordable homes, while a property possessing an Occupancy Certificate would mean zero GST.
• The GST is paid by the purchaser independently, as it cannot be included within the sanctioned loan amount as per the RBI regulations.
• Funding GST through the loan increases the principal and the total interest paid across the tenure.

Is There GST on a Home Loan in India?

GST on home loan itself, its principal, interest, and EMIs, does not attract GST. Borrowing money is not a taxable supply under the GST Act. However, certain services a bank charges alongside the loan do attract GST.

How Much GST Applies on Under-Construction Property?

Under-construction residences attract GST as a works contract, meaning the developer is providing a construction service and the buyer is paying tax on it. Per GST Council Notification 03/2019-CT(Rate), effective April 1, 2019, the applicable rates are:

For most premium Mumbai homes, including newly launched projects like Rustomjee Privé, the applicable rate is 5% on the full Agreement Value. On a ₹10 crore home, that works out to ₹50 lakh payable directly to the developer, who remits it to the government.

Read Also: GST on Real Estate in 2025

Why Is There No GST on Ready-to-Move Homes?

Once a project receives its Occupancy Certificate, the transaction changes character in law. The sale of a completed house is treated as a transfer of immovable property and not the delivery of construction services. GST on immovable property is specifically excluded by Schedule III of the CGST Act, 2017.

As a result, buyers purchasing OC-received projects like Rustomjee Parishram pay no GST on the Agreement Value at all. Stamp duty and registration still apply, since those are state-level levies, but the 5% GST outlay drops to zero.

Is GST Part of Your Home Loan or a Separate Cost?

Banks work out the sanctioned loan amount against the Agreement Value of the property, nothing more. 

Per RBI's master directions on housing finance, stamp duty, registration charges, and GST fall outside the Loan-to-Value calculation entirely. For a property exceeding ₹75 lakh, the LTV cap is 75%, which means at best the maximum loan will only cover three-quarters of the Agreement Value. GST, stamp tax and registration to be borne by the purchaser as their own contribution and out-of-pocket expense and not by way of borrowed funds.

What Happens If You Fund GST Through the Loan?

Some buyers attempt to cover their GST outlay by borrowing more, either through a top-up loan or by overstating the Agreement Value. Both approaches carry real costs.

Borrowing ₹50 lakh to meet a GST outlay at 8.75% for 20 years can add almost ₹53 lakh in interest due to long-term amortisation.

Attempting to inflate the GST on home loan to absorb GST also risks pushing the total borrowed amount past the LTV ceiling, which lenders will not sanction against a standard property valuation regardless of how the request is framed. 

The cleaner and cheaper approach is always to fund GST from savings and keep the borrowed amount anchored to the actual Agreement Value.

Read Also: Financial Planning for a Luxury Home Purchase: What Buyers Need to Know

How Is GST Charged Across Construction-Linked Demands?

GST is not a one-time payment at booking. It follows progressive billing and applies to each demand letter the developer raises across construction milestones. So for an under-construction project like Rustomjee Ocean Vista in Versova, a buyer paying in instalments tied to slab completions pays 5% GST on each instalment, as it falls due, rather than as a lump sum upfront.

Does Input Tax Credit Lower the GST You Pay?

Since April 1, 2019, the answer is no, and this is a point where the pre-2019 memory of the market can mislead buyers. Before the 33rd GST Council revision, developers paid 12% GST on non-affordable projects and could pass on input tax credit (ITC) benefits to buyers, effectively reducing the net cost. 

The revised scheme cut the headline rate to 5%, but removed ITC entirely. Developers cannot claim credit on construction inputs under the residential scheme, and buyers receive no ITC adjustment.

How Should Mumbai Buyers Budget for GST Upfront?

A practical pre-booking checklist for an under-construction home in Mumbai:

• Down payment: Keep your own contribution ready based on the applicable Loan-to-Value ratio.
• GST: 5% of the Agreement Value for under-construction properties.
• Stamp duty: Budget at the current rates of the Maharashtra government separately.
• Loan processing fee: Processing charges and GST at 18% on these charges.

The sensible approach is to fund GST and stamp duty from savings on the purchase rather than borrowed funds, so that the loan amount is tied to the actual property value, reducing total interest outgo and protecting the buyer from hitting the RBI’s 75% LTV ceiling on the higher-value property.

How Does the Rustomjee Payment Plan Treat GST?

In Rustomjee’s developer-funded payment structure, the buyer pays 10% at the time of booking and 10% closer to the date of the Occupancy Certificate. The remaining payments are from a house loan from ICICI Bank or Axis Bank, 75% paid at milestones throughout construction and 5% paid on final demand. 

There is no EMI till possession for the loan-funded amount for projects like Rustomjee Stella. GST, however, sits outside this structure entirely. It is a self-funded cost, payable alongside each construction milestone demand at 5% of that instalment's value.