GST IMPACT ON REAL ESTATE MARKET

GST IMPACT ON REAL ESTATE MARKET

By : Priyanka Chakraborty  Date : Mar 18, 2019

What is GST?

GST, also called the Goods and Services Tax, is characterized as the giant indirect tax structure intended to help and upgrade the economic growth of a nation. So as to avoid the payment of multiple taxes, for example, VAT and Service Tax, GST would bring together these expenses and make a uniform market all throughout the country. It would improve the simplicity of doing business in India.

In what capacity will GST sway on Real Estate?

Real estate industry is a standout amongst the most critical pillars of the Indian economy. It contributes between 6-8% to India's Gross Domestic Product (GDP) and it stands second after IT industry as far as employment generation. With GST coming into spotlight, indirect taxation in this part is entirely revamped. GST will improve tax compliance and limit the extension for double taxation. So there is clear cause behind home buyers to cheer, regardless of whether they need to pay slightly more in case the standard GST rate is high.

         The pre-GST taxability of Real Estate Transactions:

Nature Of Duty Rate Of Tax What Triggered Tax?

VAT*

Service Tax

Registration Charges

Stamp Duty Charges

1 to 4%

4.5%

0.5 to 1%

5 to 7%

On Sale of Under Construction Properties

* VAT vary from state to state

 

        Impact on Buyers

Under GST, a single tax rate of 12% is material on properties under development while GST isn't relevant on finished or ready to sale properties which was the situation in previous law. Henceforth buyers will profit from reduction of prices under GST.

Taxability of Real Estate Transactions under GST:

Particulars Applicability

Earlier Tax Rate

Revised Tax Rate

Input Tax Credit

Ready-to-move Properties

Not applicable

       -         -

Not available

Under Construction Properties

Applicable as supply of services as per Schedule I of CGST Act, 2017

12% 8%

Available

Works contract

Applicable

18% 18%

Available

Composite supply of works contract

Applicable

18% 18%

Available

Composite supply of works contract to Government Authorities

Applicable

12% 18%

Available

Non-Affordable Housing

Applicable

12% 5%

Available

Affordable Housing

Applicable

8% 1%

Available

*Note: The above list is indicative and rates are subject to be effective from 1st April, 2019



        Impact on Developers / Builders / Contractors

Under the earlier tax regime, developers had to bear Excise duty, VAT, Customs duty, Entry taxes etc. ITC was not accessible for duties like CST, Customs obligation, Entry Tax etc. This would affect the evaluation and consequently the burden was transferred to the buyer. Under GST, developers' construction costs are altogether reduced because of the accessibility of input tax credit. Additionally, reduction in expense of logistics will be an additional advantage. Thus developers may see improvement in margins.

On the drawback, developers need to do various estimations to arrive at ITC so as to pass it on to the buyers. Subsequently, they can pass on the ITC just amid the final stages.

       Reverse Charge Mechanism (RCM) & its Impact

The idea of RCM has been obtained from the past Service tax law.

  • If products are secured/service are received from an individual who isn't enrolled under GST, a registered individual under the GST needs to pay GST on all such supply.

  • In situations where services are received from goods transporters, legal services received from an individual or firm, services received from the government or special authorities, developer needs to pay the GST on the equivalent.

This will higher the expenses and negatively affects the developers, particularly the small developers.
 

       Treatment of Input Tax Credit, Eligibility and Ineligibility

Under GST, credit of taxes charged on all input services which are utilized or proposed to be used over the span of promotion of business would be accessible subject to exceptions.

Conditions for Claiming ITC:

• He has the ownership of tax invoice;

• He has received the products or services or both;

• The tax charged on such supply is paid to the Government by the provider;

• He has outfitted a substantial return;

• The products and services ought not have been utilized for individual use.

       Applicability of Stamp Duty

For the restricted reason for ascertaining the GST, stamp duty and enrollment charges are barred. Stamp duty will keep on being pertinent on both finished properties and under-construction properties similar to the case with pre-GST routine.




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