Here’s how GST will impact real estate and homebuyers

By: | Published: May 22, 2017 1:27 PM

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.

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.

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