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GST and its impact on real estate

Friday, July 07, 2017

With real estate among the many factors contributing to the nation’s GDP, it’s very important to understand the impact that GST will have on the real estate market, says Suraj Uchil

It’s been exactly a week since the country saw one of long pending bill being finally implemented into the tax structures –The Goods and Services Tax or as its best known as – GST. While the government launched the bill with the thinking of “ONE NATION, ONE TAX”, the nation is divided and confused about the impact of the bill in their daily lives.

The real estate market has seen an overhaul since the last year end with demonetisation and with the implementation of RERA in the past month. The actual GST rate on under-construction properties is 18 per cent. However, the effective tax on such properties would be 12 per cent as under the new regime developers will be allowed input tax credits. “What this essentially means is that unlike the earlier times, developers now can avail credit on the tax they pay to procure the materials required for the construction purposes. This is the concept of input tax credit which makes GST the game changing policy,” cites Krishnan Venkat, A GST expert.

GST, a boon?
The move is supposed to reduce the overall tax charged to the developer which they would in the hindsight try to pass it over to the end consumers, thus helping bring the property rates a bit down than the current scenario. And even if the rate doesn’t come down as much as the consumers think it should, the bill has at least taken away the burden of paying multiple taxes which are at times very confusing.

Rishi Kumar, a working professional from Mumbai, feels that the process of home buying will get a bit easier from now. “There are so many multiple taxes like VAT, Excise, Service tax, etc. that one has to pay while buying a house. Even from this VAT per cent is different in different states. So buying a house in Mumbai and buying a house in my hometown will have different taxation amounts. What GST has done is bought all of these under one roof. Though Stamp Duty is still not under GST but even with others in the pool it’s a lot easy for us home buyers to understand what and how much taxes are we going to pay. Especially for people who take home loans to buy the house.”

Not for everyone
While the new rule applies for the under construction properties, the ready to move in projects have not been included in it. This has been a major bone of contention with many people in the market. "While developers might still get some benefits for projects that are in nascent stages, they will have to bear the tax burden for the ready-to-move-in projects since they are kept out of the GST ambit," a real estate expert sated.

Also many feel that the one third tax deduction of account of abatement for land cost won’t help much in cities like Mumbai. Rajan Bandelkar, Raunak group MD and Vice President, NAREDCO, explains, “In a city like Mumbai, where the land costs today are astronomically high, a one third deduction on tax wouldn’t amount to much change. What would have helped in this situation was if the deductions were made keeping in mind the rates in the ready reckoner which is made by the government. That would have been more helpful for the developers and as a result to the end consumers.”

Although there are mixed reactions from the real estate sector, many feel that in the long run GST will bring about the desired transparency in the accounts and will help the end customers. GST also provides for an anti-profiteering provision which makes it mandatory for the dealer to pass on the benefit of GST to the end consumer. Therefore, it is a win-win for both buyers and developers. Any developer not following the rule and trying to put any kind of additional burden on the end customer can be taken to task by the consumer.

Many believe that this bill is the way forward for the country and the economy and are even calling it the biggest Tax reform the country has ever seen. Amit Mandal, a GST expert concludes, “The GST is going to be a major booster to the country’s GDP in a couple of years. It will look like a hasty decision now but in a long run it’s a good decision and a much needed one for a country like India.”

The GST is going to be a major booster to the country’s GDP in a couple of years. It will look like a hasty decision now but in a long run it’s a good decision and a much needed one for a country like India.

 - Amit Mandal, GST expert

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