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How GST will benefit Real Estate in Long Run

How GST will benefit Real Estate in Long Run
  • Sunday 18th June 2017
  • Author: Riya Kapoor

Highlights

  • Under GST, a developer can claim maximum credit and he would be paying for the finished product

  • GST rates will also reduce the cost of production for the builders

  • Industry experts feel that the actual tax impact under GST would match, or be lower than the existing multiple indirect taxes on the sector

  • The reduction of multiple indirect taxes and minimization of the scope for double taxation is a reason for home buyers to cheer

The Goods and Service Tax (GST) will be an answer to our concerns on multiple taxation, indirect taxes, uniformity, etc. RERA is moving in the right direction to ensure transparency in the realty sector. GST and RERA collectively are expected to free homebuyers and investors from a lot of hassle. Above all, it will free them from the double taxation impact and thus, GST is being welcomed by the industry as well as other stakeholders. After RERA, the next thing everybody is looking forward to is the Goods and Services Tax. Set to get implemented on 1st July 2017, GST will have an impact on the cost of various commodities.

GST Impact on Developer:

  1. Under GST, a developer can claim maximum credit and he would be paying for the finished product.
  2. The developer will need to pay only differential tax liability to the Government body. The cash component will cut down as products will have to be sourced from registered vendors to get input tax credits.
  3. GST is also expected to boost foreign investment and benefit the NRI community. With the availability of the seamless and all-inclusive channel, transacting in Real Estate will become easier for them.
  4. GST rates will also reduce the cost of production for the builders. Since the cost will be low, builders will be able to pass a part of the benefit to the buyers. The completion of housing project depends on a lot of allied industries like cement, steel, etc. A lowered GST rate of 18 per cent will offer a huge benefit in reducing the overall construction cost.
  5. While it is difficult to comment exactly on which type of projects will have more impact, as GST may vary for different project type. To avoid any confusion, the developers should study the GST impact analysis and understand the GST system and implications.  
  6. Many experts also feel that the entire chain of real estate transactions, including sale of land should be bought under the GST. Also Read:- Will RERA bring much needed relief for Buyers?

GST Impact on home prices:

  1. While the Real estate sector was heavily taxed earlier, the single 12% GST rate is welcomed. Industry experts feel that the actual tax impact under GST would match, or be lower than the existing multiple indirect taxes on the sector.
  2. We are still waiting for more clarity on the applicability or continued exemption for Affordable Housing under the GST. 
  3. If the profit margins of the developers get impacted, the profit margins for the buyer will increase. As the taxes will be low, the prices will automatically come down. Moreover, with GST all the other taxes, which buyers pay indirectly to the developers, will also be eliminated.
  4. Different segments will be impacted differently. Just for an example, for the luxury segment, since the taxes are kept higher, so an individual may have to pay a higher tax because of the higher-costing product used. At the same time, in such premium segments, there are a number of factors that care of it. So overall, it looks like there will be a fair play and impact on all the governing forces.
  5. With all the taxes coming down into a single consolidated tax, the double taxation practice will abolish. It will have a cascading effect on the inflated prices for end users.

RERA has already set the ball rolling and developers are running back and forth to understand the overall implications of the Act. The same will be the case with GST. We need to understand that India has been looking for such regulations and statutory environment for quite a long time now. The earlier we embrace these regulations, the better it will be. Everyone sooner or later has to get accustomed to the new ways of working, both in real estate and taxation. As we prepare for GST and how it will work, the reduction of multiple indirect taxes and minimization of the scope for double taxation is a reason for home buyers to cheer!!



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