Goods and Services Tax (GST), which will replace various state and local taxes with a single unified tax, finally got the Rajya Sabha approval on Wednesday. The uniform indirect tax is expected to benefit the real estate sector among others. GST, once implemented, will replace multiple taxes such as VAT/CST, excise duty etc with a single tax, reducing cost for all the players and thus increasing the demand in the sector, realty experts believe.
Amit Modi, Director ABA CORP and VP CREDAI Western UP, said, ““At present, a real estate developer incurs various kinds of expenses during the construction phase of a project and different kinds of taxes are involved with these expenses, such as value added tax (VAT)/central sales tax (CST), customs duties, service tax, excise duty and so on. Hence, GST may replace these multiple taxes with a single tax, thus reducing costs for all players. Since completed homes will not be impacted by GST as a buyer already pays stamp duty to the government on the transaction so selling an under construction apartment and renting of properties are likely to come under the ambit of this tax. ”
The state and central government levy different types of taxes for land, property and other kinds of work contracts with the transactions mainly categorised in three parts – value of services, value of goods and materials and value of land. State government levies VAT on the goods portion, but there are many states like UP where it is not charged. VAT is also not clearly defined in states such as Haryana.
So, how will GST impact homebuyers of under construction property? Ankur Dhawan, chief business officer, PropTiger explained and said GST could reduce cost for homebuyers. He said, “With the uniform tax, developers will have free input credits on GST paid for services and goods purchased by them which will reduce cost for them and can be passed as reduction to buyers. For commercial property, GST will reduce taxation as developers will be able to get input credit of GST paid for construction services against the GST charged on lease rentals. In the long run if GST can help increase GDP by 2% as predicted by experts it will in turn drive the demand for real estate hence helping real estate industry.”
However, Dhawan further said that on the flip side GST will increase the overall cost of under construction property for buyers if the rate is higher than current applicable Service Tax rate of 15 per cent. For states where VAT is not applicable till now, state GST will be charged. If the rate is relatively lower than 15 per cent, GST can result in price neutral or lower price for consumer.
Rajeev Talwar, CEO, DLF told BTVi,”GST will usher in a robust tax regime, which will create business and tax visibility along with transparency. The uniform tax will rationalise tax rates to a large extent that will lead to higher sales in the long run.” He further added that he expects a big upside in real estate sector in near future.
Modi threw more light on the impact of GST on real estate sector and further added that,”The uniform tax is also going to be applicable on the materials that a builder would buy for the construction of a housing project so it will have a certain impact on costing of projects but much depends on what rate of GST will finally be confirmed. If it is more than the existing cumulative taxes currently in force means that the overall cost of buying an under-construction flat will increase along with added cost of stamp duty and registration.”
However, some realty experts are not sure on which way the new launches will be impacted by the single tax. Vivek Agarwal, co-founder and principal partner, Squareyards said,”GST is a long awaited tax reform but its impact on real estate would be felt most on new constructions. This is because, it will seek to merge various taxes on building materials into one thus benefitting builders who would like too pass it on to the buyers. However, it remains to be seen, what would be the rate of this single tax to gauge its real impact on new launches. With improved economic environment, we are hopeful of a positive impact on real industry.”