The implementation of the Goods and Service Tax (GST) will have huge implications on the real estate market in India. Along with instilling transparency into the sector, it will also help boost buyer sentiment across segments.
GST is conceptualised around a ‘One Nation, One Tax’ philosophy. The earlier tax regime is riddled with indirect taxes, which the GST will subsume now. GST will eliminate the cascading effect of taxes on production and distribution prices on goods and services.
The technicality of the GST is slowly being uncovered and its effect on each sector will be clear once the same is in practice in some time. Implementation of GST should ensure efficiency, subsuming the many indirect taxes. GST is a game changer, and is expected to set off revival in the real estate sector.
GST is a customer-friendly decision and its implementation will be a boon for the customers of housing and commercial sector. It should usher transparency in the real estate landscape and will boost buyer sentiment. The council has fixed the GST at 12 percent on the housing sector, with the allowance of credits for taxes paid on inputs like cement, steel, paints, and other items. The service tax of 4.5 percent that buyers paid till now while taking possession will not be levied under the GST regime. The GST should help the affordable housing segment the most. The net price in the affordable housing segment of up to Rs 30 lakh at Rs 3,500 per square feet built-up area may fall. However, the Government has not come out with an explanation on how tax incidence is calculated. Thus, some more clarity is still needed.
Though the impact of GST may vary, depending on the type of property and construction methods, when it comes to the commercial office real estate market – with the existing service tax for commercial leases at 15 percent, GST at 18 percent would be nominally impacting. However, in spite of higher rates, the sector should gain from the input tax credit that is available under GST rules.
Any real estate product has 3 cost components – land, material and labour or service cost. With the implementation of GST, the tax calculations would become much simpler, since the buyer has to pay only a single tax. GST may have a marginal impact on the sector, but it will bring significant improvement in buyer sentiment and perceptions.