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Is it time to bring real estate under GST?


by Pooja Bhatia,


Recently the Finance Minister Arun Jaitley said to the Media- “The one sector in India where the maximum amount of tax evasion and cash generation takes place is real estate and which is still outside the GST. Some of the states have been pressing for it. I personally believe that there is a strong case to bring real estate into the GST,” Jaitley said while talking about India’s tax reforms at the Harvard University. Bringing real estate under the ambit of GST would result in consumers paying one final tax on the property, the FM said.

As per a recent media notification- the real estate sector (under-construction properties) in India will be taxed at- effectively 12%.

Before GST, buyers were paying service tax, state VAT, registration fee and stamp duty fee on purchasing an under-construction property. The service tax + VAT was anywhere between 3.75 percent and 4.5 percent (as per the site/state of the registered property). Post the GST implementation, GST will be levied to replace only service tax + VAT. Registration fee and stamp duty amount will still be under the state purview. So, does that mean that the buyers will pay more tax?

Well, this is not entirely true.

The GST legal command in the real estate sector has an anti-profiteering clause, to ensure that the benefit accrued to the builder after using input tax credit must be passed onto the buyer. As per the GST norm, the builder is entitled to such a benefit of around 15-20 percent of the total construction cost, which in turn, means that the sale price of the property could be low.

Also, the tax liability (or GST) will not impose itself on the buyers. The earlier tax input cost did not have as much an impact on the buyer mindset since it was too complex to understand and so the buyer only ended up paying more than the estimated cost of the property they did on own.

For the buyers, the earlier tax regime was complex and most of the buyers did not completely understand the mathematics of the final tax payout. Like State VAT rate differed for them, the buyers were only interested in knowing this single tax amount. Since there was no uniformity of tax, the buyers more often than not miscalculated the total property price and ended up feeling the pinch. Now, they would know the consolidated tax amount to be paid by them. They would any day prefer to pay a tax amount than being left in the lurch later.

Now, the GST computation is easy to do and it brings with it a whole new meaning of dealing in the property business. The qualitative factors like transparency, better regulation, etc, clearly outweigh the buyer interest in comparison to paying a small, lumpsum (differential) amount of GST on the total property cost and also, they know it in advance.

As a clear aid to the buyers, the single tax reform will be under the able supervision and administration of the government since it itself targets more revenue generation at the Centre and the State Government level.

Moreover, the developers can rejoice over the fact that lower property prices and improved transparency will encourage people to invest in the housing sector, paving way for a robust growth ahead.

The developer pays multiple taxes while procurement; there is Central Sales Tax, Customs duty, entry tax, excise duty, etc., which adds up to the final pricing of every single unit. With a single input tax, the developer is expected to pay less, thus bringing the cost of the final unit on a descend. It will increase liquidity in the market which will lead to an increase in home sales.

In the nutshell, it does seem positive news for the real estate economics ahead, especially in tune with the affordable housing segment propel by the government and the developers alike. Buyer should be in a wait and watch mode to get the best price now.

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 traveller (a blogger on holidays) and an avid reader and a part of this real-time information, she converts into real estate enthusiasm.

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