INDIAN REAL ESTATE WELCOMES GST
The much awaited Goods and Services Tax
(GST) has been finally implemented in spite of all the bottlenecks and
confusions looming, where even real estate sector has got its rate finalized.
Real estate being a case of land, which is an asset, is neither regarded as a
good nor service. As a result, a different solution has been provided to
counterbalance the negative effects of tax on the valuation of property. After
the final notification, the government has declared the GST rate for
under-construction properties in real estate at 18 percent which will be
applicable on two-thirds of the value of the property. The one-third or 33.33
percent discount on property value has been given against the land price. Since
land is an asset and with court pronouncements, this has resulted in it being
kept out of the GST regime.
Previously, a different formula for the calculation
of service tax was carried where an abatement of 70 percent was allowed on the
total value of the property to adjust against value of land and commodities utilized for the construction of a unit. Therefore, buyers earlier had to pay
only 15 percent on the 30 percent of the property value. Thus, the net service
tax for the real estate was 4.5 percent only. Whereas now, the GST rate for
under-construction real estate has been decided at 18 percent; but the net tax
incidence will remain at 12 percent (two-thirds of 18) of the selling price for
a unit or property.
Apart from service tax, a property may go
through several other central and state levies in the form of VAT, excise, CST,
registration and stamp duty charges. These jointly contribute and brings the
total indirect taxation to about 5-10 percent, varying with states. Stamp duty
and registration charges are exclusive of this and further adds to the net cost
for the buyer. But with GST, a 12 percent levy along with registration and
stamp duty charges, property prices for under-construction units are expected
to go up if the benefit from input tax credit is not passed on by the
developers.
Now with the GST in place, it will bring
about clarity, transparency and uniformity towards taxation in the country’s
real estate sector. Also with the anti-profiteering clause added in the GST
law, it will be mandatory to pass on the benefit of tax reduction arising out
of the input tax credit to the final customer. The multiplication of taxes will
now get curbed as credits of input taxes paid during each stage of production
can be availed in the succeeding stages of value addition.
In a nut shell, GST for the realty sector
is projected to be beneficial in the long run, if implemented in a proper
manner. The only dampener can be if the benefit of the input tax credit is not
passed on to the buyers. In the long term and for the overall economy in
general, GST is expected to contribute 1-2 percent towards the Indian Gross
Domestic Product (GDP).
Industry Reacts:
Avneesh Sood, Director, Eros Group
The biggest tax reform in the form of GST
has finally arrived and is expected to pave way for a much transparent and
uniform tax structure in the Indian realty sector. For the residential real
estate front, this reform is sure to be a sentiment booster in the short run
but challenges may come up for the developers due to the initial transition
process into the new tax regime. And for the investors and stakeholders of this
sector, much gain will be on offer in the long run.
Abhishek Bansal, Executive Director,
Pacific Group
Elimination of various indirect taxes,
lower transportation and logistic costs, benefit arising out of input tax
credit and simplification of tax structure are the major highlights of GST
which will allow a much needed breather for the unorganised nature of the
realty sector. A simple and clear method of purchasing property under the GST
regime will attract the homebuyers towards the sector which in the long run
will add onto the demand for property.
Manoj Gaur, Vice President CREDAI-National
& MD, Gaursons Group
The wait for a uniform tax structure in the
country is finally over and real estate sector amongst others will benefit
largely. A well-defined GST implemented for the country will bring about a
relief for this sector and its customers. Commercial realty players will be
hugely benefited as all the lost Cenvat credit, which is in current regime a
cost to commercial developer can be availed if GST is applied in a free flow
manner that will also help in reducing costs. A much simplified single tax
rate, reduced construction costs and better transparency in the sector will be
much welcomed by the developers and its customers.
Pradeep Aggarwal, Co–founder and Chairman,
Signature Global
With prices going up post the tax reform,
government will have to find out ways of minimizing the effect of this rise on
the average Indian home-buyers. Banks will have to be pushed to further lower
down on their lending rates, ensuring that the end payout remains the same in cases
of property purchases. Keeping the affordable housing segment out of GST’s
ambit is a good move but measures for the removal of stamp duty charges must be
taken into consideration to further lower the burden off the mid-segment
buyers.
Akshay Taneja, MD, TDI Infratech
Steel currently attracts taxes in the range
18-19% but post GST it will be fixed at a uniform rate of 18%. This goes on to
show that the effect of GST on steel would be bare minimum but what everyone is
looking at is the inputs of the steel industry like coal and iron ore which
have been finalized under the GST slab of 5% might influence steel prices to
come down and hence benefit the real estate sector in the long run.
Gaurav Gupta, General Secretary, CREDAI –
RNE
Prices of properties are bound to go up
post the implementation of GST as under-construction projects will attract
taxes in the slab of 12% as against the previous 4.5% approx. With no other
rebates from stamp duty and other verticals, home buyers are sure to face the
brunt of this. The only respite would be from developers to judiciously pass on
the benefits of input tax credits, if any applicable, to the buyers.
Deepak Kapoor, President CREDAI-Western
U.P. & Director, Gulshan Homz
A uniform tax structure in the real estate sector
will enhance transparency and keep the tax evaders on check. With the
anti-profiteering clause in the GST law, benefits received from the input tax
credit will be helpful for the buyers which in turn will create a fresh demand
for real estate. Impact of GST in sync with RERA will positively transform the
Indian realty sector in the next 18-24 months. Finally, a single tax regime has
always been a big hit amongst the foreign investors and thus, we expect the FDI
inflow in real estate to double in the next couple of years as REITs and InvITs
will also see its operations in India very soon.
Manoj Chaudhary, MD, Airwil Infra Ltd.
Earlier, the homebuyers of this sector were
under the pressure of two forms of taxes; service tax and VAT on the purchase
of residential units when booked prior to its completion. Before GST, there
were numerous components of non-creditable tax costs such as CST, entry tax,
customs duty, excise duty, etc. which were duly paid by the developer upon its
procurement which were basically ingredients for the cost pricing of the units.
With the GST now, a single tax structure will be followed which will remove the
multiplication and duplication of indirect taxes that will promote transparency
in dealings. We are expecting the demand numbers to grow by a steady 5-7
percent for the residential real estate and 10-15 percent for commercial
segment over the course of next 3-5 years.
Dhiraj Jain, Director, Mahagun Group
Cement is as essential a component of the
realty sector as any other and the current tax slab of 24-25% would be revised
to 28% with the implementation of GST. This will directly influence the
construction cost of a project ultimately pushing the prices of properties
higher. On the flip side though, GST shall bring a multi-edged positive impact
on the sector, bringing in more transparency, eradicating multiple taxation
system and making the system more systematic and streamlined.
Piyush Sharma, Senior Vice President, Sikka
Group
This is a historic moment for the entire
nation where a completely fresh tax reform has been implemented in full force
which is projected to boost the economy in the long run. As for the real estate
sector, clarity over transacting and eradication of multiplicity of taxation
will motivate buyers and bring an end to the cascading effect that inflated the
prices earlier. With the availability of input tax credit, benefits will be
passed onto the buyers which will gradually pick up the demand.
Vikas Bhasin, MD, Saya Group
GST will without a doubt be a game changer
for the Indian real estate sector in the times to come. Ensuring a steady and
stable tax regime along with transparency for the buyers, it will allow the
sector to increase its contribution towards the economy and the GDP in the next
few years. According to the net tax of 12 percent for the real estate sector,
under-construction properties falling under the affordable or budget segment
level might become cheaper, whereas the luxurious or premium category housing
units are expected to see a price rise now.
Rakesh Yadav, Chairman, Antriksh India
Group
With the cost of under-construction
properties projected to go up due to the new tax rate under GST, the government
must now work towards abolishing the stamp duty and registration charges and
offer land parcels at much subsidized rates. This, if coupled with lowered rate
of interest by banks for home loan will bring about a lot of cheer among the
buyers in the sector and bring a sudden surge in demand. At the same time, GST
will prove to be a major contributor towards offering more clarity over
taxation for the buyers, which has not been a case till date.
Kushagr Ansal, Director, Ansal Housing
With the dawn of concepts like hustling in
service tax coupled with reductions and various mandatory charges collected by
developers earlier, highlights the importance of having a same tax base for
which GST was the only answer. A single tax rate across the country will now
promote fair practices which will further encourage transparency and less
evasion in the sector that supports in future growth of demand for real estate.
GST will definitely prove to be a game changer for the Indian economy and
provide a stimulus to the foreign demand coming into India.
Rajesh Goyal, Vice President CREDAI-NCR
& MD, RG Group
The wait for GST is finally over as the
much discussed consistency in the tax structure will now be visible. Real
estate sector will now be charged at a net tax rate of 12 percent which will be
almost 3-5 percent more than the previous combined effect of service tax and
VAT on the under-construction properties. But if the developers pass on the
benefits of the input tax credit to the buyers, then the effect might get more
or less neutralized. Buyers are expected to relish the real estate sector post
GST as they will have complete clarity over the taxation.
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