Post GST's implementations on July 1, there have been a few
apprehensions that end-consumers are currently harbouring. The
quintessential question therefore is: how severely would you be affected
by GST in your real estate dealings? We seek some answers...
There is a lot of confusion in the minds of the home-buyers and
developers about the implementation of GST that came into effect from
July 1, 2017. People are not sure whether they would be benefited by the
new tax system or would have to shell out more money. We bring some
clarity with regards to this.
"The real estate sector is currently burdened with indirect taxes on
multiple counts such as service tax, Value Added Tax (VAT), stamp duty,
registration charges, etc. People were confused and weren't aware w.r.t
which taxes were going to be subsumed to be continued under the GST
regime. However, with various initiatives undertaken by the government,
it is now made abundantly clear that stamp duty and registration charges
shall continue and Service Tax VAT would be subsumed in the GST regime
and replaced with CGST + SGST (of specific state). With the increase in
the indirect tax rate on construction services (read: 12 percent), the
government has issued a press release cautioning developers against
resorting to extraction of additional GST on account of the increased
tax rate without due regard to GST credits," says Amit Kumar Sarkar,
Partner and head indirect tax, BDO India.
Benefits of GST:
The biggest game-changer under GST is the introduction of the Input
Tax Credit (ITC), whereby credits of input taxes paid at each stage of
production or service delivery, can be availed in the succeeding stages
of value addition. Anuj Puri, chairman ANAROCK Property Consultants Pvt
Ltd explains, "To ensure that manufacturers, developers and service
providers pass on the benefit to the final customer, the government has
included an anti-profiteering clause in the GST bill under section 171
of the GST law. This clause clearly states that it is mandatory to pass
on the benefit of the tax reduction (due to the input tax credits) to
the final customer."
Some important benefits of GST are:
It would help eliminate the cascading tax structure; It would ease
compliances; It will create a uniform tax rate and structure; It would
help in reducing additional tax burdens (on consumers).
GST misconception and facts:
While there has been a lot of speculation doing the rounds when it
comes to GST, Samir Jasuja, founder and CEO, PropEquity clarifies and
says, "Let's clear the misconceptions one by one:
Myth 1: Property prices will rise with GST getting applicable on each construction-related material and service:
FACT: Property prices will not rise. The developers can take the
input tax credits for the materials used for construction and the
services paid. The government has asked the developers to pass on the
benefits of the lower tax under the GST regime to the buyers as well,
which in turn, will marginally reduce property prices. The government
has also passed the anti-profiteering rule, which would prevent any
increase in property prices.
Myth 2: EMIs on property buying will shoot up due to GST:
FACT: No, EMIs on property may remain the same or marginally reduce as the overall property price is expected to drop.
Myth 3: Resale property will also get costlier:
FACT: No, it will not get costlier. The impact of GST on resale proper ties is likely to be less.
Myth 4: No input credit will be allowed if you purchase an office.
FACT: The input tax cred it will be allowed for an office space if the purchase is made before the property gets the Completion Certificate (CC) or prior to the first occupancy."
Shubika Bilkha, business head, Real Estate Management Institute
explains, "GST has been levied on the renting of residential proper ties
and an 18 percent tax will be applicable for leasing commercial
properties. Experts have clarified that the threshold limit for the
applicability of GST has been increased from Rs 10 lakh to Rs 20 lakh.
Hence, some of the landlords that came within the purview of the service
tax regime may not be included under the tax net of GST."
India versus the rest:
Experts point out that a uniform tax structure in markets such as
Indonesia, Thailand, among others, has been a catalyst to increase
investments. It is important to remember that when buyers purchase
properties, they focus on the value, their individual needs requirements
and potential appreciation of the asset, over taxation slabs. Bilkha
shares how, "With the introduction of RERA and GST, the real estate
sector is metamorphosing into a transparent, tightly controlled and
regulated industry. All these measures will, in the long run, create
stable businesses, as well as contribute towards reducing the trust
deficit between the consumers and the developers."
How would GST bring in holistic growth in the realty market?
The reduced cost of construction will bring in more liquidity for the
developer; The developers can take the input tax credit for raw
materials like cement and steel. This would bring down the total amount
paid in taxes and avoid double taxation on the same product; Free flow
of credits will further boost the margin of the developer; GST will
reduce inflated taxes and bring in more transparency and help in
improving trust among the buyers.
GST perks for the home-buyers:
Possible reduction of property prices with additional credits flowing
to the developers; A variety of products would be available from other
states, as the GST regime promotes interstate procurements.
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