Goods and Services Tax (GST) is considered to be one of the biggest tax reforms in many years. This was proposed initially 10 years back and it took more than a decade to become a reality. Finally, on 1st July 2017 GST was presented in a special early morning session in Indian Parliament. It is supposed to make the tax regime simple and transparent. It is also considered to be helpful in doing business in India. Unfortunately, it has come out with a lot of confusion and uncertainties. We will be writing about on various methods by which GST will impact Indian Real Estate industry.
Let us first look at the list of raw materials that have been affected by new GST rates.
Cement: increased by 2%
Coal, Limestone and lignite: Decreased by 5%
Now Let us look at how GST has changed the taxation when it comes to home buyers.
Previously one had to pay VAT, service tax, Stamp duty and registration charges while buying a home. Also, this varied from state to state and depending on the construction status of the property.
With the new GST, regime taxation is simplified. Now there is no VAT and service tax instead only GST. In addition to GST Stamp duty and registration, charges are to be paid which remains the same. GST has also changed the tax rates for the home buyers. To provide clarity for home buyers, have a look at the tax break down under GST for home buyers.
Tax Percentage of GST on home buyers
- 12% GST on under construction property. 6% tax on land has been waived off.
- 18% GST on all new properties yet to be constructed
- No GST on ready to move properties.
The minor reduction in tax and the transparency will lead to an increased positive sentiment in the market and will lead to a positive development for the real estate sector
GST impact of Developers
GST is positive for real estate developers in many aspects like
- Previously developers have to pay service tax and VAT, now this has been transferred to the buyer which is a big relief for developers.
- GST has decreased both the cost and time of logistics. GST will fast track acquiring raw materials and also a minor reduction in the cost of construction.
- Input tax credits are allowed for Developers now under the new GST scheme. This will be a margin booster for developers.
With all new benefits of GST and the recent introduction of RERA Real estate act, the Real estate will become much more transparent and lucrative investment option. GST will also ensure reduction of cash transactions which will eliminate black money in the real estate industry.