GST aka Goods and Services Tax recently announced the taxation rates for various goods which would take India a step closer to the unified tax regime. This new tax regime would be a revolutionary act in the tax reform of India. Its impact would be seen in every transaction being performed in the country. One of the biggest impacts of this Goods and Services Tax (GST) would be seen in the Indian real estate sector. As per the new tax rate announcements, the real estate projects and properties have been put under the 12 percent slab. The ready to move in projects are exempted from this new tax form and only the under construction and upcoming projects would be under the purview of the new GST tax system.
Earlier, real estate sector was one of the most heavily taxed sectors and that’s why people related to the real estate sector have high hopes on GST. This new Goods and Services Tax would dilute all the other taxes that people had to pay on real estate property. Before GST, a number of state-levied and center-levied taxes like service tax, Value Added Tax (VAT), excise duty etc., were applied to every real estate project. This led to the problem of cascading or dual taxation where the buyer had to pay double taxes individually to the state as well as the center. With GST, all these taxes have been subsumed into one and the slab for real estate has been set at 12%.
Impact Of GST On Real Estate
The impact of GST on real estate is something that has been creating a lot of buzz in the real estate sector. While some said that GST would increase the already high price in the real estate sector, others were opining a decrease in the price of property post the implementation of GST. However, even after the final tax rate of GST for the under construction property being set at 12% by the government, there still is less clarity on the price of property in India.
"The GST will be a game changer for industry, including the real estate sector, since it will subsume more than 16 major taxes and levies into a single consolidated tax," says Parveen Jain, President of NAREDCO (National Real Estate Development Council).
The impact of GST and property price would vary from one state to another as VAT was a state levied tax which was different for different states. While the states where the earlier indirect taxes were higher than the new 12% tax, would rejoice at the lower property rates, the states that enjoyed indirect taxes lower than 12% would feel that the property prices have increased for them. However, Parveen Jain of NAREDCO opines, “The actual tax incidence under GST will match or be lower than the existing multiple indirect taxes on the sector. The GST rate for work contracts, which will also be offset by input credits, will provide for a seamless and simplified tax policy.” This means that the homebuyers can rejoice as there are high chances that GST would make the price of real estate in India more feasible.
Moreover, when seen from another point of view, GST is sure to lower the construction cost as the indirect tax levied on the construction material was much higher than GST. This would decrease the overall construction cost for the builders, who in turn would lower some proportion of the home price. Another important benefit of GST would be the increased transparency in the real estate sector. It would definitely make the transactions in real estate more transparent with a single tax levied on the entire process instead of numerous smaller taxes.
GST would definitely remove all the obstacles from the path of homebuyers and they would now be able to buy property at a significantly lower rate. Let’s wait 1st July to see how significantly the prices would lower when this tax would be applicable in every Indian sector.