PARADIGM SHIFT - Homebuyers will be real gainers
The passage of the four GST bills in the Lok Sabha and the Rajya Sabha, recently, paved the way for the realization of the biggest tax reform Independent India has seen.
GST will bring uniform taxation across the country and also touch all sectors, including the real estate, after it kicks off on July 1. As GST is an indirect tax, ultimately borne by consumers, the main worry of homebuyers is how GST will impact them and whether property will become costlier after its implementation.
Developers say that GST will benefit the real estate sector by removing the current regime of double and triple taxation.
“In the long run, GST will bring homogeneity and standardization in the real estate sector. It will rescue end consumers from the hassles of paying various state taxes at different levels. Apart from the significant reduction in tax management expenses due to a single unified tax, the compliance costs will also go down. On the other hand, the service charge levied on the purchase of the property is likely to push costs up a bit. However, whether the home purchase becomes costlier or cheaper will depend on the final applicable tax rate,“ Ravish Kapoor, director of Elan Group, said.
Prashant Tripathi, group spokesman of Viridian Group, says GST will benefit both homebuyers and developers.
“The removal of multiple layers of taxation with the implementation of GST will prove to be a boon to the real estate sector. Once the policy is implemented, not only would the sector be streamlined, it would also save potential buyers from multiple taxation. The same would be equally beneficial for the real estate companies, as there would be significant reduction in tax management expenses due to a single unified tax regime, resulting in reduction in compliance costs,“ Tripathi said.
Some developers say that GST will bring a paradigm shift in terms of a single tax structure, which is bound to be much lesser than the current excise duty, service tax, and inter-state levies on the construction goods moving from one state to another and imported goods travelling from the coast and traversing different states.
“What has to be seen is the final applicable rate of GST in real estate and how it would affect the cost of raw material. If the raw material cost comes down considerably, then there are chances that prices might even out a little bit and that is the only benefit that buyers will get with the implementation of GST. Therefore, we expect the government to takes necessary steps so that homebuyers are benefited from GST,“ Akshay Taneja, MD of TDI Infratech Ltd, said.
Industry experts say that if a homebuyer purchases a property under construction, there can be two implications. Service tax payable on property under construction will be replaced by GST.Currently, there is an abatement for cost of land for calculating service tax on residential properties under construction, resulting in about 4% service tax.
“In GST, there is no clarity on abatement for cost of land in the case of a project under construction. Even if the abatement for cost of land is applicable in GST and the lowest slab is applicable, there will be increase in cost. Secondly, in the GST rules, the input tax credit has not been allowed for works contract services, when supplied for construction of an immovable property, which may increase the overall cost of a project. However, if a homebuyer purchases a completed immovable property, there would not be much change, as the sale of immovable property will not fall under the ambit of GST. Thus, the buyer will continue to pay stamp duty on these transactions,“ Surabhi Arora, senior associate director (research) at Colliers International India, said.
Whatever be the case, everyone is of the opinion that GST will bring a lot of transparency and accountability into the sector and also minimize dubious transactions.
Currently, many developers are charging different taxes at different rates due to lack of clarity. Customers are subject to VAT and service tax, apart from indirect taxes in the form of excise duty, octroi, and entry tax. GST will bring all these taxes under one basket and customers will not be subject to multiple taxes. However, the impact of GST on the real estate sector cannot be completely assessed till the time there is clarity on the rate to be declared.
“As for homebuyers, with uniform tax in place, developers will have free input credits on GST paid for products and services obtained by them, hopefully, which will diminish cost for them and benefits can be passed to consumers. Secondly, when an investor goes to purchase a property, he winds up paying VAT and service tax and the tax rates shift with each state. With GST in place, buyers will pay only a single tax while obtaining property in India, removing any ambiguities. However, GST will enhance the general expense of property under construction for buyers, if the rate is more than the current applicable service tax rate of 15%. If the rate is moderately lower than 15%, GST can bring about price neutral or lower cost for homebuyers,“ Atul Banshal, president (finance and accounts) of M3M Group, says.