Impact of GST Regime on Real Estate Sector

The real estate industry is one of the most significant pillars of the Indian economy and contributes around 6–8% to India’s Gross Domestic Product (GDP). In Metropolitan cities like Delhi, Mumbai, and Bangalore, Real Estate stands second after the IT industry in terms of employment generation. GST in India has been implemented from 1st July 2017, stressed out most taxpayers and Vendors due to its acquiescence.

Real sector experts have positive opinions on GST implementation, they say it is going to boost the economy and benefit the Real Estate sector. How? let’s take a glimpse at some words of the experts,

Anshuman Jain, MD of Cushman & Wakefield for India said, GST would benefit the overall real estate sector by maintaining a uniform tax structure, thereby ameliorating the tax compliance by the developers. The GST Bill would surpass most indirect taxes that currently exist, with one tax, hence ensuring a coherent taxation system. Under GST, Real Estate developers would see a lesser burden of tax on input materials like cement, steel, iron, etc., as tax credits would be available for setting forth at various stages.

In Bangalore, the Best luxury apartments in Devanahalli will get benefited from this GST regime. This scenario will lead to lower construction rates for developers which could likely benefit property buyers/occupiers in long run.

According to Brotin Banerjee, MD & CEO, Tata Housing, The Goods and Services Tax(GST) is likely to be a turnaround for the real estate industry, which is currently stuck with issues of multiple taxations elevating to over 25 percent in the form of indirect taxes. With the uniform tax, developers will have free input credits on GST paid for materials purchased by them for construction purposes, which will reduce cost and can be passed as a reduction to buyers on their purchase. It is a win-win situation for both parties. If you are looking for 3 BHK flats in Devanahalli for sale, it is the right time to invest.

Post GST Scenario

With much fanfaronade, the GST regime was launched in India on July 1, 2017. It is estimated to be the biggest tax reform in India after Independence, the GST has absorbed multiple indirect taxes, to provide a uniform regime to the taxpayer. incipiently, the GST for real estate was kept higher but the BJP government, which launched the rebellious tax regime, reduced the rates in 2019. This initiative was taken to make properties more affordable to the people of the country and to uplift its zealous ‘Affordable Housing for All by 2022’ target.

Input Tax Credit (ITC) under GST

A distinct characteristic of the GST law is its ITC system, which makes it disparate from the previous tax system in India. From the beginning of a housing project, till its accomplishment, a real estate developer pays tax multiple times on the purchase of goods and raw materials. Under the GST regime, the Real Estate developer would get an input tax credit when he pays his output tax.

GST on construction services

While real estate in India does not directly comprise the amplitude of the GST regime, various essential activities and services in the sector are falling taxable under the new regime. There are the following rates which are associated with activities in the construction sector and certain tax structures, they are as follows-

• Under construction property under credit-linked subsidy scheme(CLSS) has been marked 8%.
• Under construction property without subsidy has been marked 12 %.
• Works Contract for affordable housing has also been marked 12 %.

GST on Maintenance Charges for Gated Societies

Apartment owners are liable to pay 18% GST under the residential property scheme if they pay at least Rs 7,500 as maintenance charge to their housing society. Housing societies or residents’ welfare associations (RWAs) that used to collect the maintenance charge from the flats also have to pay 18% tax on the entire amount. Housing societies that have an annual turnover of less than Rs 20 lakhs are exempted from paying the GST. The two main conditions under the GST regime are-

• The flat owner is paying more than Rs 7500 on the maintenance
• The annual turnover of the gated society is more than 20 Lakhs.

GST impact on stamp duty and registration charges

It has been seen from the time of the implementation of GST in India, The Government has taken no initiative to put a bar on the stamp duty and the registration charges involved in the purchase of the property. Hence, property transactions in India continue to work on the same pretentious structure of stamp duty and registration charges. While states impose stamp duty in the range of 5%-10%, the registration charge is either 1% of the property value or a standard fee, so it can be concluded that GST has no impact on the stamp duty and the registration charges.

GST impact on under-construction properties

Under the new GST regime, the GST council has fixed the rate at 12% of the cost of the property. The actual rate of the GST on real estate property is 18%, but Government has taken the initiative to break it down, hence allowed one-third of the tax to be deducted from the land value from the total cost which is to be charged by the Real Estate developer. If a person is looking for 2 BHK flats in Devanahalli for sale, this GST policy will benefit him immensely as the land value is lower in Devanahalli compared to other areas of Bangalore.

GST Impact on Ready to move Property

There is bad news for ready-to-move properties as the Government has made it clear that the buildings which have already been constructed will not gonna attract GST. It means they won’t be getting any tax credits on the materials and services they used to set up the project. Earlier the tax rate was 8–9 % among all the states which has been increased to 12 %, a straight increase of 3–4 % on the tax rates. Even with this drawback, 1 BHK flats in Devanahalli for sale are in huge demand.

Conclusion

Though there is a very minimal benefit that the buyers can get in terms of price reduction of the real estate properties, it is estimated to have significant improvement once the ball of GST starts rolling. One thing is for sure, buyers will experience a better price and transparency in the coming future from the real estate sector. Government initiatives and better implementation of RERA can help to improve this sector in near future.