Skip to main content

GST on Real Estate: How will it impact Home Buyers and the Industry?

GST on Real Estate: How will it impact Home Buyers and the Industry?

The GST Bill was approved in the Lok Sabha on March 29, 2017 with four supplementary legislations- The Central GST Bill, 2017; The Integrated GST Bill, 2017; The GST (Compensation to States) Bill, 2017; and The Union Territory GST Bill, 2017, will subsume central excise, service tax, VAT and other local levies to create a uniform market. GST is expected to boost GDP growth by about 2 per cent and check tax evasion. States will have to pass their State GST or SGST law that will allow them to levy sales tax after levies like VAT are subsumed.
Impact of GST on real estate
The construction of a complex building, civil structure, or a part thereof, intended for sale to a buyer, wholly or partly, is subject to 12 per cent tax with full input tax credit (ITC), subject to no refund in case of overflow of ITC. In other words, residential construction services, will invite GST at the rate of 12 per cent, which will apply to developers selling residential units before completion of construction to the home buyers.
According to the JM Financial report on GST, for states with non-composite VAT (Karnataka, Tamil Nadu, Andhra Pradesh), the transaction value changes marginally from 10-11% to 12% under the new regime. With input cost credits available, developers in these regions may witness improvement in margins in case no price revision takes place (subject to the anti-profiteering clause).

 Abhishek Anand, assistant vice-president (Equity Research), JM Financial Ltd, explains: “In the current regime, states with composite VAT require developers to pay lower VAT rates on the total property value without any input tax benefit (Maharashtra, Haryana) or partial benefit (intra state offset- Bangalore). Under this regime, developers pass on the transaction cost – VAT (1%) and service tax (4-5%) to buyers (total 5-6%). Developers get offset for only the input service tax component. In the GST regime, the transaction cost increases to 12%, with input credit available on both, services and material. Property transaction costs will increase by 6%, in case no input credit is passed on by developers. If developers pass on the input credit to buyers, the property price increase could be restricted to 1-2%.” If the developers pass on the credits completely and bring down the base prices, then, home buyers may marginally benefit under the GST regime.
Nevertheless, stamp duty will continue to be applicable, irrespective of whether the property is under-construction or constructed, in the pre-GST and post-GST regime.
Will GST help home buyers?

 With the introduction of the Goods and Services Tax (GST), the total incidence of tax will increase from 5.5 per cent to 12 per cent. However, developers will be able to avail of input credit, on all the goods and services purchased and spent in the construction of the property.
Shrikant Paranjape, president of CREDAI Pune Metro, maintains that “The impact of the GST on property prices, will be difficult to gauge at this stage because of the lack of clarity on abatement for land value. In a product, where the major raw material is not covered by the GST and the completed unit is also not covered by the GST, the tax input benefit will be hard to calculate or justify. Only the market forces, the ready reckoner rates and time, will decide whether and how much benefit will be passed on by the developers to the purchasers.”
Moreover, the prices of input materials can also be volatile. Cement and steel prices can soar, without warning. Similarly, sand is always in short supply and not available in the monsoons. Hence, it is likely that these industries may not pass on the entire benefit of tax credit.

 Another important factor that needs to be examined, is the stage of construction. If the project is at an advanced stage, where substantial cost has already been incurred before the application of the GST, very little input credit will be available and very less benefit will be passed on. If the project is at an early stage, more benefits can be passed on.
Written By:

 Gaurav Hooda
IV Year

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect the views and opinions of the Blog.

Labels

Labels:
Location: Sahibzada Ajit Singh Nagar, Chandigarh, India

Comments

Post a Comment

Popular posts from this blog

INTRA INSTITUTE DEBATE CHAMPIONSHIP - 2018

The ability to formulate your thoughts is something that everybody possess. However, it is the ability to put across your thoughts in such a manner that they appeal to those listening, is the gift of oration. Everybody is a speaker, but not everybody is an orator.  The annual edition of the Intra-Institute Debate Competition was organized on the 15 th of February, 2018. The debate was organized in two rounds with the first eliminations round being organized on the 13 th February, open to the whole student body. The eliminations saw strong participation on the topic ‘Is Space Exploration Ethical’. On the basis of the performance at the elimination rounds, 8 teams were chosen to participate in the final round organized on the 15 th in the Multi-purpose Hall (MPH). These 8 teams were: Afreen & Nritika (II Year) Fury (IV Year) & Kainat (II Year) Sankalp & Arundhati (III Year) Trisha & Anshul (II Year) Vatsala & Tavish (V Year) Prateek ...
Post a Comment
Read more

Mohandas Karamchand Gandhi: Man of the Millennium

M.K GANDHI: MAN OF THE MILLENNIUM “The bald, lanky, shirtless, bespectacled man from India, Father of the Nation, Gandhi was the pivot behind India's struggle for freedom against British rule.” Few people who have walked this planet have made an impact as huge as Mahatma Gandhi. The bald, lanky, shirtless, bespectacled man from India, Father of the Nation, Gandhi was the pivot behind India’s struggle for freedom against British rule. While the first revolt against the British rule was in 1857, it was nothing as massive as that led by Mohandas Karamchand Gandhi. He led an army of millions all bound by two principles, truth and non-violence. Gandhi started a number of relentless movements to reach the final goal that was freedom and the same was achieved for India on August 15, 1947. It was only fitting that the title of ‘Mahatma’ was conferred upon this great Indian leader. Mahatma Gandhi studied law in United Kingdom and went ahead to South Africa to practice as a lawye...
Post a Comment
Read more

INTRA INSTITUTE MOOT COURT COMPETITION 2018

For students of law, mooting is perhaps the most important skill one must hone. To facilitate the students in getting optimum mooting experience, the Army Institute of Law holds the Intra-Institute Moot Court Competition annually.  The final round of the Intra-Institute Moot Court Competition 2018 was held on the 12th of April 2018. The competition was conducted over 2 preliminary rounds held on 10th and 11th of April 2018 and semi-final and final round held on the 12th. The competition saw 16 teams fighting out the Proposition prepared by Mr. Anil Malhotra, senior advocate. The preliminary and semi-final rounds were presided by faculty members of the institute. Gracing the bench for the final round were Justice Dipak Sibal, Judge, Punjab & Haryana High Court, Prof. Dr. Rattan Singh, Director Panjab University and Mr. Anil Malhotra, Senior Advocate, Punjab & Haryana High Court. Reaching the finals were Team 1 comprising Shweta Nair and Akanksha ...
Post a Comment
Read more