GST – What It Is and How It Impacts Real Estate

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The Goods and Services Tax (GST) takes all the taxes coming under state and central governments and converts them into one single payable tax.
Through this, GST aims to make taxation simpler by solving the hassle of paying taxes at many stages.
In the GST Regime, businesses whose turnover exceeds Rs. 20 lakhs (Rs 10 lakhs for NE and hill states) is required to register GST number as a normal taxable person. For certain businesses, registration under GST is mandatory.

For businesses, the GST aims to bring a uniformity of tax rates and structures. This can help in reducing the cost of doing business, thus improving the market situation. Also for Central and State governments, managing the GST is easier than managing numerous indirect taxes. Moreover, the GST is also expected to reduce the tax burden for the consumers.

The final rate for GST was expected to be around 20-23% but is currently fixed at 18%.

The introduction of the GST also has a significant impact on the real estate in India for both builders and buyers. Currently while buying a property that is under construction, a buyer has to pay numerous taxes and charges. These may include VAT, sales tax, stamp duty and registration charges. However, now GST will be replacing the indirect taxes like VAT and sales tax.

The builder also pays various non-creditable taxes that are added to the sale price of each property unit. These are, CST, excise duty, customs duty, entry tax and so on. These taxes add to about 22 – 25% of the price of a property. Moreover, the GST will also be applicable for a builder while procuring material and services. This tax would be non-credible and thus be added to the price of each property.

As a result, it was expected that the value of properties that are under construction may rise. However post demonetization, the unorganized property sector has seen a fall of prices by 30%. Moreover, there haven’t been any change in prices for the organized sector.

Also for an under-construction project, a builder may have already brought some of the raw materials and paid a tax on them before implementation of GST. As the builder cannot claim a credit on this tax, this cost is added to that of the house. Thus, GST can be beneficial only if it benefits the builder who in turn passes this onto a buyer.

For an individual buying a property that is ready for possession, service tax or VAT does not need to be paid, but the stamp duty (variable for each state) is payable. As a result, in consequence of implementing GST, no significant change in pricing is expected in this case.

It is worth noting that the government aims to make housing affordable for everyone. Keeping this in mind, investors and financial institutions can have more faith in the property sector’s growth and stability even with the implementation and impact of GST.