GST and the Real Estate

GSA and the Real Estate India

With the implementation of GST from July 2017, people wanting to invest in the real estate sector as well as dispose of their existing one are curious to understand how GST will impact them.

We have received numerous queries after this move by the government. While it may not be possible to address all individual queries in one go, a few of them are mentioned below:

Have the property prices raised post the GST roll-out?

Overall prices in the real estate sector have increased slightly post the implementation of GST.

As per the government, the properties which are under construction will be charged 18% tax which includes 9% CGST and 9% SGST. The government has permitted the subtraction of land value equal to one-third of the total amount asked by the builder. This is thus, reducing the effective tax rate to 12%.

What will be the impact on the ready-to-move-in properties?

The price of the assets is expected to go high because GST is not applicable on ready-to-move-in properties. The pressure of the tax is to the developers because of which they may charge extra to bear the add-on expenses.

How will the resale of the properties be affected by the GST?

The immovable properties are out of the scope of the existing provisions of GST, and therefore, the seller will not be liable to pay the tax on selling the property.

How will the GST affect various charges such as registration charges, stamp duty, etc.?

As far as stamp duty and registration charges are concerned, they do not come under the scope of GST system. However, it can be expected that the government will include these fees under GST in the coming years.

What will be the effect of GST on EMIs on home loans?

GST is applicable at the rate of 18% on the financial services. This indicates that there are chances that home loan processing charges will increase.

The overall impact of GST will be apparent with time until then the speculations will continue to come up and disappear as well. As of now what we can say is that the GST roll-out is beneficial for both the builders and the customers.

GST and its impact in the Real Estate Sector

GSA and Real Estate

GST as we understand now

The much awaited ‘General’ term that promises to bring about structural changes

Goods & Services Tax is an indirect tax levied by the government to replace all other indirect taxes of the entire country with an objective to make India one unified common market to strengthen the economy.

  • India is shifting to this new taxation system from 1st July.
  • The new structure will include fewer central and state taxes, including service tax, excise duty, and VAT in the categories of CGST and SGST.
  • The new tax regime has also included an anti-profiteering clause in the law to ensure profit by the developers to the buyers.
  • Besides agriculture, it is the property sector which is the most important sector of the Indian economy.
  • Whether it is employment generation or the GDP, the contribution of Real estate industry can be estimated with its average 5-6% GDP contribution to the economy and the inciting demand for more than 250 ancillary enterprises.

The Impact of GST on the Real Estate Sector

Impact of GST on Real Estate India

It is expected to play a threefold role-

  1. ensure transparency
  2. minimize illegal transactions
  3. help in growing buyer confidence.

It may be noted that:

The sale of land and buildings are at present out of the purview of Goods & Services Tax. However, it is believed that they will be brought under the purview of GST within one year. The construction of buildings and land is going to benefit from the rates declared for iron, bricks, and cement under Goods and Service Tax. Logistics cost of transport of iron, bricks, and cement will reduce because of the subsuming and integration of many taxes in our country.

  • The current channels of taxation include multiple taxations, amounting to indirect taxes and no uniformity.
  • Therefore, the new taxation system along with RERA that came on May 1, 2017, would bring efficiency and improve performance.
  • It is expected to relieve homebuyers and investors from the trouble of paying several state taxes at various levels, therefore removing the impact of double taxation.
  • It is hoped that it would be beneficial in carrying forward the benefits which the sector derives from SEZ.
  • It could fill the gaps that exist in the supply chain management process.

What can the GST achieve?

From an overall perspective, the impact of GST could be imperative transparency and accountability. Developers /Contractors, consumers, investors all would reap the benefit of many taxes which will be subsumed by GST.  Even in the middle of scepticism that the announced rate is higher than the present one, the sector should be pleased with the totality of benefits expected.

  • There is an enormous percentage of expenses on projects that go unrecorded on the books currently.
  • It can cut down this rate through cloud storing of invoicing.
  • The new law will lead to multiple benefits to all ancillary industries because of the positive effect on real estate sector.
  • It is likely that it brings about an increase foreign investment in the domestic market.
  • The NRI community could gain in terms of investment because of the availability now of a smooth all-inclusive tax regime.
  • This simplification of taxation has been the most positive aspect of it, and it might promise well for foreign investments especially as far as raising the confidence of the NRI market to invest in Indian real estate market is concerned.
  • From the consumer’s point of view, the major advantage of this change would be the expected fall in the entire tax burden on goods which at present estimates about 25%-30%.
  • This tax could lead to better transport of merchandise free of cost across state borders. Transportation without being stopped for long for payments of state or entry tax from one state to another further reduces the paperwork to a great extent.