July 2017 | Back to all Real Estate Articles
Post GST's implementation on July 1, there have been a few apprehensions that end-consumers are currently harbouring. The quintessential question therefore is: how severely would you be affected by GST in your real estate dealings? We seek some answers...
There is a lot of confusion in the minds of the home-buyers and developers about the implementation of GST that came into effect from July 1, 2017. People are not sure whether they would be benefited by the new tax system or would have to shell out more money. We bring some clarity with regards to this.
“The real estate sector is currently burdened with indirect taxes on multiple counts such as service tax, Value Added Tax (VAT), stamp duty, registration charges, etc. People were confused and weren't aware w.r.t which taxes were going to be subsumedto be continued under the GST regime. However, with various initiatives undertaken by the government, it is now made abundantly clear that stamp duty and registration charges shall continue and Service TaxVAT would be subsumed in the GST regime and replaced with CGST + SGST (of specific state). With the increase in the indirect tax rate on construction services (read: 12 per cent), the government has issued a press release cautioning developers against resorting to extraction of additional GST on account of the increased tax rate without due regard to GST credits,“ says Amit Kumar Sarkar, partner and head indirect tax, BDO India.
The biggest game-changer under GST is the introduction of the Input Tax Credit (ITC), whereby credits of input taxes paid at each stage of production or service delivery, can be availed in the succeeding stages of value addition.Anuj Puri, chairman ANAROCK Property Consultants Pvt Ltd explains, “To ensure that manufacturers, developers and service providers pass on the benefit to the final customer, the government has included an anti-profiteering clause in the GST bill under section 171 of the GST law.This clause clearly states that it is mandatory to pass on the benefit of the tax reduction (due to the input tax credits) to the final customer.“
It would help eliminate the cascading tax structure; It would ease compliances; It will create a uniform tax rate and structure; It would help in reducing additional tax burdens (on consumers).
While there has been a lot of speculation doing the rounds when it comes to GST, Samir Jasuja, founder and CEO, PropEquity clarifies and says, “Let's clear the misconceptions one by one:
Myth 1: Property prices will rise with GST getting applicable on each construction-related material and service:
FACT: Property prices will not rise. The developers can take the input tax credits for the materials used for construction and the services paid. The government has asked the developers to pass on the benefits of the lower tax under the GST regime to the buyers as well, which in turn, will marginally reduce property prices. The government has also passed the anti-profiteering rule, which would prevent any increase in property prices.
Myth 2: EMIs on property buying will shoot up due to GST:
FACT: No, EMIs on property may remain the same or marginally reduce as the overall property price is expected to drop.
Myth 3: Resale property will also get costlier:
FACT: No, it will not get costlier. The impact of GST on resale proper ties is likely to be less.
Myth 4: No input credit will be allowed if you purchase an office.
FACT: The input tax cred it will be allowed for an office space if the purchase is made before the property gets the Completion Certificate (CC) or prior to the first occupancy.“
Shubika Bilkha, business head, Real Estate Management Institute explains, “GST has been levied on the renting of residential proper ties and an 18 per cent tax will be applicable for leasing commercial properties. Experts have clarified that the threshold limit for the applicability of GST has been increased from Rs 10 lakh to Rs 20 lakh. Hence, some of the landlords that came within the purview of the service tax regime may not be included under the tax net of GST.“
Experts point out that a uniform tax structure in markets such as Indonesia, Thailand, among others, has been a catalyst to increase investments. It is important to remember that when buyers purchase properties, they focus on the value, their individual needsrequirements and potential appreciation of the asset, over taxation slabs. Bilkha shares how, “With the introduction of RERA and GST, the real estate sector is metamorphosing into a transparen nt, tightly controlled and regulated industry. All these measures will, in the long run, create stable businesses, as well as contribute towards reducing the trust deficit between the consumers and the developers.“
The reduced cost of construc tion will bring in more liquidity for the developer; The developers can take the in put tax credit for raw materials like cement and steel. This would bring down the total amount paid in taxes and avoid double taxation on the same product; Free flow of credits will further boost the margin of the develop er; GST will reduce inflated taxes and bring in more transparency and help in improving trust among the buyers.
Possible reduction of property prices with additional credits flowing to the developers; A variety of products would be available from other states, as the GST regime promotes inter state procurements.