Property buying is a big decision for an individual. In a market where new laws and amendments are taking place that will have a direct impact on the real estate sector it becomes important to know all about it. First the enactment of the Real Estate Regulation & Development Act (RERA) and now Goods & Services Tax (GST), both will have a direct impact on the real estate sector. These news laws will bring transparency and accountability in the real estate industry. Other than this, understanding about GST impact on real estate becomes more important as it is the second largest employment generating industry in the country. It indirectly impacts over 250 ancillary industries and contributes around 5-6% of India’s GDP. So, analyzing the impact of GST on real estate sector is essential for an individual, developer and overall economic perspective.
The GST subsumes all the indirect taxes and has been the biggest ever tax reform in the post- independence era. Before we understand the implications of GST on real estate industry, it is essential to have a fair understanding of real estate in the previous tax regime. As per the property and construction status, taxes were levied. So, on purchasing an under-construction property, VAT, service tax, stamp duty, and registration charges were levied. While, for a completed project, stamp duty and registration charges had to be paid. Moreover, these taxes levied like VAT, stamp duty and registration charges varied from state to state. But with GST, there will be one uniform tax, everywhere.
Here’s a complete insight into GST and its impact on the buyers, developers, rental segment and affordable housing.
GST & Property Buyers
As the GST comes into effect, all under-construction properties will be charged a 12% GST. Along with it, stamp duty and registration charges will have to be paid. While, on the ready-to-move-in projects no indirect taxes are applicable. Other than this, buyers will benefit with price reduction thanks to the input tax credit claimed by developers.
The input tax credit is paid at each stage of service and production, and can be availed in the successive stages. To ensure developers pass the benefit of this input tax credit to end consumers, an anti-profiteering clause has been added to the GST Bill under section 171.
GST & Developer
The Developers will gain with the input tax credit coming into effect. Earlier, the developers had to pay multiple taxes on materials purchased for property construction. And the burden of this multiplicity of taxes had to be borne by the buyers, as well. But under the GST regime, all these indirect taxes have been removed and now the developer has to pay only one single tax, which in most cases has been reduced or maintained. Here’s a snippet
Along with the challenge of multiple taxes, developers will also benefit with quick and relatively economical transportation of goods. As GST is destination based tax, it brings changes in the transportation and logistics sector. Under GST, logistics and transportation cost will also come down.
GST & Affordable Housing
In light of “Housing for All by 2022” vision of the present NDA government, no GST will be levied on affordable housing.
GST & Rental
GST will be applicable on commercial rental income above 20 lakhs. The taxpayers will have to register themselves with the GST Network and pay taxes. But rental income from residential property is exempt from GST.
With GST coming into effect, real estate will benefit with easy compliances, uniformity in tax rates and structure, and will be bidding adieu to the cascading tax structure. Moreover, with GST and RERA, buyers can expect more transparency and accountability in property buying. And as far as the impact is concerned, we can expect a decline in the cost of construction and surge in demand in real estate especially through the affordable housing segment for the middle class. All this will overall give a substantial boost to the Indian economy, at large.