by Pooja Bhatia,
The on-ground impact of GST on real estate is still to be gauged since no tax on property purchase has been finalised yet. However, there are high hopes that bringing real estate under GST ambit will reduce the tax confusion with consumers paying a single tax i.e. GST on property purchase eventually.
So far, developers get to enjoy input tax benefits on under-construction properties. The builders are therefore expected to pass on the lower tax benefits under the GST regime to the property buyers. It can be in form of reduced prices or instalment to be paid for an under-construction property. In other words, the builders or construction companies should not ask buyers to pay tax on instalments once the GST on property purchase is imposed. This is because, they too (developers), get the benefit of GST on input purchase.
What will be the likely impact of GST
Real estate sector is expected to be put in GST slab rate of 12 per cent with full input tax credit. This means that an under-construction property will invite a GST of 12 per cent. GST on ready to move in property is not applicable. In other words, if a property is considered to be ready-to-move-in, then there will be no GST taxation on it. Similarly, resale of properties or flats will not invite any GST.
How GST will work
GST on property purchase, once it is launched, is only expected to minimise the multiple indirect tax burden on the buyer. The buyer will simply pay a single tax and this will necessarily reduce the confusion of taxation on property purchase in the mind of the consumer.
At present, multiple taxes are levied at the time of property purchase. There is service tax, state VAT, stamp duty, and registration charges. There will be no separate GST on property registration, for example, but a single GST to be paid at the time of buying a property.
Also, it will bring in the transparency factor for the buyers as at present each state levies their own VAT on property selling, which only makes the consumer less aware of the amount to be paid as tax. Home loans process is cumbersome. It takes most of the time and attention of the buyers, which means they pay less attention to additional taxes to be paid. Their whole attention is given to the value of the property against which they avail a home loan. However, indirect tax like service and VAT can increase the value of the property by 15%.
GST on ready-to-move-in properties or resale of properties is likely to be very little since buyers do not need to pay any indirect tax on them already. Since buyers are not liable to pay any indirect tax for the purchase of ready-to-move-in properties, the impact of GST on buyers of resale properties is likely to be very little.
Government is also likely to give a concession on applicate GST for house purchase under the CLSS of the Pradhan Mantri Awas Yojana (PMAY) to eight per cent.
In addition, landlords will not be taxed on the rental income they earn. Which means, there will be no GST burden on properties let out on rent. The only exception to the rule is when the property is given on rent for the commercial or industrial purpose, from which the rental income is above 20 lakh annually. A GST of 18 per cent will be levied. Rental income from the residential house is only GST exempted.
Pooja Bhatia is a property news enthusiast, who likes staying updated on business and corporate news, lifestyle at home, home interior elements, location insights and rest of the information, to make living better. She is also an avid traveler (a blogger on holidays) and an avid reader and a part of this real-time information, she converts into real estate enthusiasm.