Implications of the GST Bill on Real Estate

GST is one of the much awaited tax reforms in India which is expected to propel the Indian economy forward. Four crucial bills relating to the GST have been passed on March 29, 2017 in Lok Sabha, which means that the government is on track to implement GST by July 1, 2017. 

Goods and Services Tax (GST) bill could be a game changer for the Indian economy as that would mean a single tax across states, replacing charges like cess, surcharges and other taxes. GST is a comprehensive indirect tax on the sale, manufacture and consumption of different kinds of goods and services throughout India which will do away with all other central and state taxes. This will have a positive impact on taxation in India. It is expected to single handedly solve the challenges faced by the Indian Real Estate sector and pull it out of its slump.

GST will have far-reaching implications and could prove to be a boon for the Indian real estate market. The real estate sector will have to implement GST within one year of its roll out.

In the current scenario, the developers have to incur various indirect taxes during the construction phase of a project, which include VAT/CST, customs duties, service tax, excise duty, and other taxes. Majority of these taxes are just included in the system, as they are not creditable to the developer or to the end-customer. These non-creditable expenses lead to tax inefficiency, which is not desirable for an economy. These taxes make the cost of Residential Projects in India very high, deterring home buyers in India.

With the government pushing for a cashless economy and homes for everyone, GST will do away with credit utilisation, thereby strengthening the credit chain in the entire system. If developers are able to manage this aspect properly, they will be able to gain profit and could pass on the saving to buyers of residential properties in India. If the developer passes the benefits of input credits to customers, the cost of property ownership could come down, even if the buyer has to pay slightly higher taxes.

There has been a lot of ambiguity on how GST will impact home buyers, especially those who have already invested in residential properties in India and are paying EMI’s on homes. There are a number of apartments in India which are lying vacant due to the high costs for home buyers. However, once the GST is levied, a lot of the taxes that a developer and a home buyer in India pay will be clubbed together, making it much simpler to Buy Property in India.

GST will provide a progressive and streamlined approach for investors looking to purchase properties in India. Presently, builders running projects in different states have to comply with state-specific VAT laws, as well as other kinds of service taxes, which GST could ease as developers will now be able to pay a single tax across states. This would help in reducing material and transportation costs which the builder has to pay while transporting goods through multiple states.

At present, service tax is only levied on industrial and commercial units which are rented out but the residential unit is exempt from taxes. Under GST, Tenancy and Leasing would be considered as rendering a service. The GST will have a positive impact as service tax and VAT will be replaced by the Central GST and State GST, while the stamp duty will remain unchanged. This would lead to nearly 20% saving to the users planning to buy property in India. The real estate sector will see the implementation of GST within one year of implementation, which means stamp duties will continue to be levied till then. Overall, even if the cost of homes may become slightly higher, clubbing of the taxes under a single bracket will result in lowering prices in the real estate sector.

GST could prove to be the biggest boon to the Indian economy; it will encourage a unified market, with one tax for all goods and services. Once GST is implemented in July 2017, it would make the taxation system simpler and straightforward free from all ambiguity. This would help India in attracting foreign direct investment, as the taxation system would become simpler, promoting ease of doing business in the country, leading to overall development of the Indian economy.