This Independence Day the citizens of India have a got a gift in the form of unanimous approval from both the houses of parliament of the long awaited GST (Goods and Service Tax). The GST, once applicable, would make the tax process transparent as it will also reduce double taxation on many items. The Government has set a deadline of April 2017 for its roll out. Let’s see how the GST would impact the real estate sector in India.
The real estate industry is an important sector of our economy as it contributes about 7.8% to India’s GDP and is the second-largest employment generator after the IT industry. The implementation of GST is expected to solve many of the challenges faced by the real estate sector and help in ushering in transparency needed to pull out the sector from the problems it is facing since the past few years.
Presently, a buyer of property has to pay Service Tax, VAT in some states as well Stamp Duty. The Service Tax is collected by the developer and deposited with the Central Government. If you are purchasing an under-construction property, you will have to pay additional VAT (Value Added Tax) in some states such as Karnataka, Haryana and Maharashtra. Developers charge this value added tax, and deposit it with state government. Also, Stamp Duty is charged by state government, again at varying rates, for registration of sale agreement for real estate transactions.
Moreover, there are also various elements of non-creditable tax costs, like excise duty, customs duty, CST, entry tax, etc paid by the developer on his procurement side, which add to the cost of units upto anywhere between 22%-25% of its price. The proposed GST should replace these multiple taxes with a single tax and should also ensure smooth flow of credits through the chain.
Also, under GST developers would see lesser burden of tax on input items like cement, and steel, as tax credits would be available for set off at various stages. This can lead to lower construction costs for developers across all asset classes, which could likely be passed on to property buyers. Hence, it is widely expected that GST should reduce the construction cost in the hands of the developer
However, the direct impact of GST on real estate, in terms of tax outflow for developers and consumers, will depend on the final GST rate. But one thing is certain in that the cumbersome procedures involved in collecting and depositing various taxes will be done away with and the taxation part will become highly transparent, thus helping the builders and buyers alike.
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