Impact of GST on Real Estate

Impact of GST on Real Estate

GST as described by PM Narendra Modi, the goods and service tax has simplified the complex tax structure in India.

The GST bill has been all over the news since the past few weeks. Some products are giving people a great relief, while others made them stalk up their homes with products that will be expensive soon. Despite being the talk of the hour, people are still not sure about how it is going to affect them while making big financial decisions.

GST as described by PM Narendra Modi, the goods and service tax has simplified the complex tax structure in India. The multitude of indirect taxes have been reduced to four tax rate slabs, i.e, 5%, 12%, 18% and 28%. This simplification of tax regime has impacted different sectors differently, real estate being the most affected sector. People are made to believe that the GST will be on the pocket, but in reality the prices are going to got upsince the sale is usually from the middle and luxury segment.

A buyer who paid 4.5 percent Service Tax and around 4 percent of VAT earlier, will now have to pay 12 percent GST, hiking the taxes by almost  3.5 percent which in the context of today's realty market conditions is a very significant hike. With Stamp Duty being an additional 5-7% the taxes on realty may have reached an astounding figure of 17-19%.

With Real Estate and Regulation Act already in place to provide a mechanism for this tax regime to work, the aim of the government is transparency and simplicity in real estate market.  The lack of proper infrastructure has lead to builders not being able to sell a single under construction flat since the last 60 days. This is mostly because they have not been able to register their projects on time because of government infrastructure not being in place. Now with the added burden of GST one can expect the real estate sector to go for a long holiday.

The Government expects that builders will pass on the input of GST to the buyer, and that will eventually give a relief to the customers looking for some real estate investment. This is farfetched and unrealistic. Rise and fall in prices totally depend on the demand and supply. The reasons and terms to pass on the GST input to the buyer is still questionable.

Real estate sector has implications on developers, buyers encompassing cost of land, material and building cost. The cost of materials in the course of GST has undergone some minor changes like cement, paints and plasters to be taxed at 28% while iron material at the rate of 18%, building houses with high quality material may alleviate the overall cost as most of the materials fall in the 28% tax category. Also the service charge given to the realtor for assistance in buying or selling the house, which is 15% now will considerably rise to 18% with GST.

Real estate has already experienced loss and lag after demonetization and in the current setting is expected to suffer further as the cost of purchasing new houses would be increased by 8% which consequently reduces the demand in real estate by 12%.

However, another problem that concerns the realtors is that of compliance as they are required to file the returns thrice a month. This makes the filing of returns both tedious and difficult for businesses with less number of accounting professionals. Realtors also look forward to a legal mechanism to deal with protection against defaults.

Sam Chopra, President of NAR India

Published on: Jul 07, 2017, 7:04 PM IST
Posted by: Anneshwa Bagchi, Jul 07, 2017, 7:04 PM IST