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GST in Real Estate

GST, which has been implemented from 1st July 2017 has stressed out most of taxpayers and dealer’s due to its compliance requirements.

How it affects the taxes in real estate sector got different views from industry experts.

 

As we know that real estate industry contributes about 7.8% to INDIA GDP and it is the second largest employment generator after IT industry.

The enactment of this tax law will alone solve the challenges faced by the real estate sector and help the sector to come out of its long slumber.

 

In the earlier tax regime, when property under construction was purchased, the purchaser was subjected to the payment of VAT, service tax, stamp duty, and registration charges.

Property purchased after completion were exempt from VAT and service tax, and only stamp duty and registration charges were payable.

 

GST will reduce the cost of buying houses for buyers as in the previous tax regime, they had to pay Service Tax and VAT on purchase of residential unit when booked prior to their completion,

developers had to pay excise duty, custom duty, CST, Entry tax which is non-creditable tax cost, on their professional side, which is included in the price of units.

With the uniform tax rate, developers will have input credits on GST paid for services and goods purchased by them which will reduce the cost for them and can be passed on to the buyers.

 

The uniform tax structure will improve compliance by developers. It will bring greater transparency to the sector and minimise unscrupulous transactions.

GST will have a cascading effect for the home buyers, as developers with more margins in their hands, will be able to restructure the cost of the products in favour of consumers.

 

However, the tax calculations under the GST regime, for the real estate market, are not so simple. For example, the GST on under-construction projects will be charged to home buyers on the sale price

but the credit can be availed by the developers, only on the cost of construction. As the builder will have to pay the GST on the full project and the input availed is only on the construction cost, there may be a gap that is no less than 30 per cent.

Consequently, whether you opt for an under-construction property or ready to move-in, the developer will hike the prices in that proportion, to make sure this gap is bridged.

 

Meanwhile, the Group of Ministers (GoM), under Gujarat Deputy Chief Minister Nitin Patel, set up in January 2019 to analyse tax rates and challenges being faced by the real estate sector under the GST regime is leaning in favour of lower rates for under-construction residential properties.

The panel has favoured lowering the GST rate on under-construction residential properties to 5 per cent (without input tax credit) from the present rate of 12 per cent with input tax credit (after abatement of land) and for affordable housing to 3 per cent from the current rate of 8 per cent.