GST or Goods and Services Tax was rolled out on 1st July this year by then President Pranab Mukherjee and Prime Minister of India Narendra Modi.
The new tax pursues to transform India into `One Nation, One Market, One Tax’ propaganda by subsuming the host of indirect taxes as well as implementing the simpler tax on goods and services.
Whether you are a seller, buyer, financier, investor, intermediary or developer, GST will certainly impact each and everyone in the real estate sector in numerous ways.Are you a developer and are worried about the material and inputs costs? Are you a buyer and are keen to know if the rates of housing real estate post-GST will go down or not?
Here is a look at on how GST will impact the real estate sector:
What is the effect of GST on real estate investors and buyers?
GST is certainly a sentiment booster for the industry and will definitely seek to revive the investors and buyers by bringing more transparency in taxation. With the perception of the sector has improved, the rates are likely to drop around 1-3% if at all they do. The taxation earlier was complicated for the buyers.
Earlier scenario, the buyers were previously liable to pay taxes depending upon the construction status of the property as well as the state where it is located. The buyers also had to pay stamp duty, VAT, service tax, and registration charges on the purchase of the under-construction property.
If the purchase, however, was for completed property, tax applicable was registration charge and stamp duty. Further, since stamp duty, VAT and registration charges were said to be state levies, each state stated its own figures. Service tax was the earlier central levy and was charged on construction. Thus, the calculation of taxes was very monotonous in the previous regime.
GST charges under-construction properties at 12% sale of ready to move in properties is that tax will not apply to those. The biggest takeaway is that the GST is a simple tax that applies to overall purchase rate.
A developer could take the input credits on the sale of the under-construction property against taxes that are paid earlier by the buyer. Previously, service tax and VAT used to account for closely 9% of the ticket rate of the property. Since that will be pretty lower than the GST applied to the sector, all the builders will have to pass on benefits of the rate reduction to the buyer. The reduction in price is on account of the input tax credits that builder enjoys.
Benefit to developers.
If you are a developer, you earlier were charged for Central Excise Duty, entry taxes collected by the state on construction material costs and VAT.
Furthermore, you have to pay 15% tax on the services such as architect fees, labour, approval charges, legal charges, etc.
Eventually, the tax burden was transferred to buyers.
Under the new regime, however, the changes in the cost of construction are not grave. Further, the reduced cost of logistics will result in decreasing the expenses as well. Also, the input tax credits will help in increasing the profit margins as well as it will be a simpler tax to work with.