1. Here’s how GST will impact real estate and homebuyers

Here’s how GST will impact real estate and homebuyers

With the announcement of the rates for taxation under the Goods and Services Tax (GST) for various goods, India is now one step closer to becoming a unified tax market.

By: | Published: May 22, 2017 1:27 PM
According to industry experts, prima facie it looks like that there will be a neutral impact from cost perspective.

With the announcement of the rates for taxation under the Goods and Services Tax (GST) for various goods, India is now one step closer to becoming a unified tax market. However, while the impact of GST on various sectors and goods is now known, industry experts are still divided over how GST will impact real estate going ahead as clarity on the tax slabs for services is still awaited.

According to industry experts, prima facie it looks like that there will be a neutral impact from cost perspective. Although the work contracts will attract around 12% and most of the construction material is under the 18% and 28% slab, the availability of input tax credit should neutralize the overall impact. A lot, therefore, will depend on the proper implementation and a proper system of claiming tax credits.

“With the Real Estate Development and Regulation Act (RERA) also under implementation, developers may need to focus much more on streamlining their processes. We may expect initial teething issues, but implementation of GST should further enhance India’s attraction as an investment destination by encouraging greater transparency and ease of operation in all property deals,” says Surabhi Arora, Senior Associate Director, Research, Colliers International India.

However, it is too early to say whether the implementation of GST will actually cool down the prices in the commercial and residential segments. “More clarity will come in the coming days as it is still not clear what would be the abatement available for land cost for calculating service tax on under-construction projects,” she says.

Anshuman Magazine, Chairman, India and South East Asia, CBRE, also says that several goods connected to the real estate industry are falling under the 18% and 28% slab. However, clarity on the tax slabs for services is still awaited. “In the long term, however, the successful implementation of GST in the country will be a game-changer for the market. The removal of various federal tax barriers and creation of a common market will improve supply chain efficiency and attract more FDI into the country,” he says.

Apart from attracting more FDI into the country, GST will also impart more transparency to the sector which currently faces a perception issue. “It will provide a thread for audit and checks for better control and monitoring of the sector. As a result, the home buyer will be empowered towards informed decision-making,” informs Amit Agarwal, co-founder, NoBroker.

GST will free end-consumers from the hassle of paying several state taxes at different levels, therefore removing the double taxation impact. Also, the implementation of GST will hugely benefit the NRI community towards investment in real estate through the formation of a seamless all-inclusive channel. The existing channels include issues of multiple taxation, amounting to indirect taxes and no uniformity.

In totality, “GST will add up as another factor among the government’s other schemes towards affordable housing, which is beneficial to the growth of the sector. Buying a home will now be easier as benefits will now be extended to both the developers and the end-consumers,” says Agarwal.

  1. P
    Prajapati Girish B
    Jul 2, 2017 at 11:13 pm
    My home total amount 18 lakh developers paid 12 Lakh before 1 July 2017 and 6lakh paid after 1july 2017 construction is running Which amount gst and how many? Plz ans me
    Reply
    1. R
      Rajesh Mishra
      Jun 7, 2017 at 11:41 am
      Dear Sanjay I am Rajesh, from Mumbai, Maharashtra. Understood your take on GST, but the lets look at an example: Under Current taxation a customer pays 4.5 Service Tax, 1 MVAT, 5 Stamp Duty, taking it to a total of 10.5 Govt Tax including Stamp Duty. Under GST Customer will pay 12 GST, 5 Stamp Duty, taking to a total of 17 Govt Tax inclusive of Stamp Duty. So for an Agreement of 1cr, currently Govt Tax, customer pays is 10,50,000/- and under GST the same customer will pay 17,00,000/-, so it becomes a costly proposition. Can you throw some light on the above aspect please
      Reply
      1. S
        Shashi Ranjan Rai
        May 22, 2017 at 4:26 pm
        Need the elaboration of current taxes and then GST
        Reply
        1. V
          Vishwamitra
          May 22, 2017 at 2:17 pm
          The write up is a dud piece! It informs next to nothing to reader. It does not say how much will be the service tax for a buyer of under construction property. Nor does it speak about stamp duty. Will stamp duty be subsumed in GST. At present a buyer has to may about 5 stamp duty, 1 VAT, Service Tax about 5 and also deduct 1 TDS from payments made to builder if the property value is Rs. 50 lakh or more. The write up touches upon none of these!
          Reply

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