Impact of GST on real estate: What you should know


Goods and Services Tax or GST is being touted as a revolutionary tax reform that India has seen since Independence. It is expected to reduce the tax burden of India by eliminating the complex and confusing tax structure. However, whether the new tax system will succeed in giving us the desired results, is something we will have to wait and assess.

If you are interested in property, you must be waiting with folded arms to understand the impact of single indirect tax-structure regime on real estate sector before you invest. So, here are the key points for you to understand what GST means for real estate –

  1. The central government has fixed 18 per cent GST rate for under-construction properties with full Input Tax Credits (ITC) for the real estate sector. The rate of 18 per cent includes 9 per cent State Goods and Services Tax (SGST) and 9% Central Goods and Services Tax (CGST). Deduction of land value equivalent to one-third of the total amount charged by a developer, is excluded from this, making the effective tax rate as 12per cent.
  2. The implementation of GST has reduced the tax burden on those home buyers who are planning to buy ready-to-move-in apartments. As the tax on the entire cost of the housing project, including the land, will be levied at about 12 per cent, it is enough for the developer to claim input credit. Therefore, buying OC-ready projects are cheaper for home buyers.

Home buyers are now showing more interest in ready-to-move-in properties. This trend had already started after RERA came into picture.

Under-construction projects involve several risks, such as project delays, which actually doubles up the cost for the home buyers. Though buying ready-to-move-in projects is a bit costlier than the under-construction projects, but now post GST, ready-possession homes are going to be the preference of the home buyers in India.

  1. As of now, stamp duty and registration charges are kept outside the ambit of GST. The states have been opposing their inclusion on GST as stamp duty is levied by states, while property tax is levied by municipal authority. But the government plans to subsume them in GST in future. When and how it will be done is yet to be seen.
  2. Since GST is a new Act, compliance has become an issue. This has created a lull in the market as developers are busy correcting their books. What comes as a little respite to the developers is the announcement by the government that a detailed return need not be filed by traders/businessmen and a summary return is sufficient this year.
  3. First the implementation of Real Estate Regulatory Act (which requires developers to register themselves and their projects) and then GST has created an environment of initial confusion in the market. Therefore, teething issues are inevitable. And, they are likely to be there for at least 12-15 months, as per the experts.
  4. GST brings both pains and gains for the economy and real estate sector is no exclusion. Where there are gains, such as easier redressal of tax issues, no overlapping jurisdiction between Centre and states, there are pains, related to classification, composite and mixed supplies, etc. Transition period will be a pain for developers and consumers as well.
  5. For developers, the unregistered vendors have become a headache. Earlier, the liability to pay taxes was on the provider of goods and services, which has now shifted to the receiver. This means that any purchase from an unregistered dealer will attract a reverse charge on the one who is receiving. As it will add to the compliance cost of the buyer, the developers will now not like to make purchases from the unregistered dealers.
  6. There is another aspect of GST’s impact on real estate, which people are now gradually talking about. It is their impact on the home loans. On financial services, the GST of 18 percent is applicable. Therefore, banks’ charges on loan processing have escalated. The higher the cost of your house and the loan on it, the higher will be the processing charge on your loan.

By Preeti Pandey

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