Should GST be applicable on real estate?
It is certainly one of the most talked about topic across the nation.
In fact, GST discussion has heated up among all the political parties in India. Whether it is about Rahul Gandhi, the Vice President Indian National Congress party addressing GST council or Manish Sisodia, Delhi Finance Minister writing letter to ArunJaitley.
Meanwhile, Bihar Deputy CM and GST council member, Sushil Kumar Modi has made it clear that the inclusion of real estate in Goods and Services Tax (GST) is “not that easy” and would take “much longer time”,the world of Real Estate is now looking forward to council’s next meeting.
Well, you will have to wait for what conclusion will this hullaballoo lead to. But being a prospective homebuyer, you must be pondering over the consequences if real estate should be brought under GST. Will GST benefit the homebuyers? Or will it affect the home prices in India?
So, here we have tried to compile the best possible answers to quench your thirst for queries related to GST and Real Estate. These will include;
- How will GST impact real estate?
- How will GST affect developers?
- What about the ready-to-move-in homes?
- Will a slightly higher GST rate be acceptable to buyers?
Before you dig out the answers, you need to have a look at the list of taxes which are applicable on real estate and construction industry currently. Check out the info graphic stating them at a glance:
Now with the launch of GST, it is expected to subsume these multiple indirect taxes. So, it tends to simplify tax compliance, meanwhile minimizing the scope for double taxation. This means that there will be clear reason for home buyers to cheer. Sounds good, right?
How will GST impact real estate?
Regardless of the fact that real estate sector accounts for around five per cent of India’s gross domestic product (GDP), the sector deals with macroeconomic conditions and fiscal policy decisions. It also includes the management of the multiple indirect tax levies, including VAT, service tax, excise, stamp duty, and registration fees.
Now with the launch of GST, it is expected to subsume these multiple indirect taxes. So, it tends to simplify tax compliance, meanwhile minimizing the scope for double taxation. This means that there will be clear reason for home buyers to cheer. Sounds good, right?
How will GST affect developers?
Similar to the buyers, GST is expected to be helpful for the developers too. Actually, it is expected to bring down the project cost as there are many taxes and duties being paid by a developer on the procurement side. From Central Sales Tax, excise duty, entry tax, to Customs duty, there are different charges which are subsequently passed on to the final pricing of the property.
In such a case, when GST proposes to roll multiple taxes into one, it can be expected for the cost of construction to come down. Hence, more liquidity into the market and boost in home sales is anticipated. It is a win-win situation!
What about the ready-to-move-in homes?
As far as the under-construction projects are concerned, developers will have the option of getting full input set-off credit. However, ready-to-move-in flats have been kept out of the GST ambit. So, these will remain unaffected.
Will a slightly higher GST rate be acceptable to buyers?
Buyers need to know that they are not liable to pay any indirect tax for the purchase of ready-to-move-in properties. Hence, the impact of GST on buyers of resale properties will be very little.
As far as the under-construction property transactions are concerned, buyers have to pay value-added tax (VAT) and service tax. Being a state levy, VAT rate differs from one state to another, and service tax is a central tax which is charged at 15 per cent. So, the current taxes on home purchase are high and of course, accompanied with mind-boggling complexities. In fact, no amount of research can help the buyer to know the right rate he is paying. Among the lengthy government documents, which are highly interpretative in nature, there are good chances that you might get lost in the study.
To cut down on this, GST will introduce a clear uniform rate, i.e. one tax which includes everything that they you pay in taxes to authorities. In short, the whole payment process becomes highly convenient. So, even if a higher rate appears through, it might be more acceptable to him than a lack of clarity. Isn’t it?
To conclude, due to the lack of clarity on abatement for land value, the exact impact of the GST on real estate will be difficult to gauge at this stage. However, transparency in the tax system will certainly bring forth changes and benefits, which will be passed on by the developers to the purchasers.
For the time being, we can just wait for the GST council to take arighteous decision that favors everyone!