The Impact of GST on Residential Real Estate

Anuj Puri

The switchover to the GST regime is undoubtedly one of the biggest tax reforms in post-independence India. From July 1, 2017, GST effectively cuts through a confounding Gordian knot of taxation complexity in the country. In other words, it replaces the multiple taxes levied by the central and state governments and will become subsumed of all the indirect taxes, including central excise duty, commercial tax, octroi tax/charges, Value-Added Tax (VAT) and service tax.

GST has been predominantly conceptualized around a ‘One Nation, One Tax’ philosophy and will:

  • Help eliminate the previous cascading tax structure
  • Ease compliances
  • Create uniform tax rates and structure, and
  • Help in reducing additional tax burdens on consumers.

However, the biggest game changer in GST is the introduction of Input Tax Credit, whereby credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition. This makes GST fundamentally a tax only on value addition at each stage.

This means that the end consumer will thus only bear the GST charged by the last dealer in the supply chain, with set-off benefits at all the earlier stages. To ensure that manufacturers, developers, and service providers pass on the benefit to the final customer, the Government has included an anti-profiteering clause in the GST bill under section 171 of GST law. This clause clearly states that it is mandatory to pass on the benefit of tax reduction due to input tax credit to the final customer.

Impact on Residential Real Estate

To say the least, the Indian real estate sector has been going through a significant transformation in the recent times. The recently implemented Real Estate and Regulation Act (RERA) has already started addressing the issue of non-transparency and affixes a level of accountability on real estate builders and brokers which are unprecedented in the history of the Indian property sector.

For the residential real estate sector, the implementation of GST will definitely be a positive sentiment booster among property buyers. GST may not be instrumental in bringing down the prices of residential real estate over the short term. However, it will benefit all the stakeholders of the residential real estate sector, as the perception of the sector will improve on the back of a simplified tax structure and accountability being fixed at every stage.

Benefit to Property Buyers

A simple and transparent tax applied on the purchase price is the biggest take- away for property buyers. Under the GST regime, all under-construction properties will be charged at 12% (excluding stamp duty and registration charges). It will not apply to completed and ready-to-move-in projects, as there are no indirect taxes applicable in the sale of such properties.

VAT (with rates differing from one state to another) and Service Tax together accounted for 7-9% of the ticket price for a residential property, which is 3-4% lower than the GST rate. However, due to information asymmetry, consumers were largely unaware of how VAT and service tax is calculated – definitely, the entire tax calculation was too complex for people to understand.

 

Any real estate product comprises of three expense components, namely land, material, and labour or service costs. VAT is calculated on material cost, and service tax is calculated on labour and service cost. It is very difficult for buyers to ascertain what components were included for calculation of VAT and service tax.

The implementation of GST makes the calculation much simpler since the buyer has to pay only a single Goods and Services Tax. Also, the builder must pass on the benefit of the price reduction he enjoys due to input tax credit to the buyer.

Impact on Affordable Housing

The affordable housing sector, which is a major thrust area of the incumbent Government and is the cornerstone of its ‘Housing for all by 2022’ vision, will not be impacted by GST. This has been clarified by the announcement from the Finance Ministry, which indicates that there will be no tax under GST for housing projects which come under the affordable housing scheme.

Benefit to Developers

In the previous tax regime, real estate developers also grappled with the challenge of multiple taxations. On various construction materials they purchased, builder paid customs duty, central sales tax, excise duty, entry tax, etc., thus creating various instances of multiple taxations. The cumulative burden eventually got passed on to the buyer.

GST will eliminate all the other taxes, and the benefit of being able to claim input tax credit can also improve developers’ profit margins.

Major construction materials have not seen a major change in tax rate.

  • Cement will be taxed at the rate of 28% under GST, which is higher the current average rate of tax around 20-24%
  • Iron rods and pillars will be charged at the rate of 18%, which is similar to the average rate of 20% under the old taxation regime
  • Paint, wall fittings, plaster, wallpaper and ceramic tiles will be taxed at 28%, which is also similar to the previous average rate of 20-25%
  • Sand lime bricks and fly ash bricks will be taxed at 5%, which is lower than the previous rate of 6%.

However, the marginal change in the percentage of these variables will make a huge difference as transportation and logistics costs reduce in the single taxation system.

To conclude

While there might be a marginal impact on the real estate sector in the near term, we are definitely looking at a significant improvement in buyer sentiment and perception of this sector. Developers too will find the GST regime much simpler to work with, with the benefit of input tax credit being an added advantage.

Anuj Puri, Chairman, ANAROCK Property Consultants

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

1,484 thoughts on “The Impact of GST on Residential Real Estate”

  1. Wow! Prices of all material like steel, cement, etc goes up with GST and still constructions cost are going to come down!! This is like the stiarcase which when you climb up actually takes you one level down!! Let's keep kidding ourselves. I still believe in Santa Claus and the tooth Fairy.

    Reply

  2. Total land cost is around 60%+ in urban centres of the total flat cost. 12% GST is going to be applied on the entire flat value. Hitherto land cost was not applicable for VAT or Service tax but applicable for GST. Since Input tax credit being available they will offset the GST increase as claimed by government. It is totally wrong and any calculation will prove otherwise. 

    Reply

  3. By what logic are you expecting the prices to go down when the tax on the main and the most used item Cement is increased. Secondly they have increased the GST for underconstruction property to 12% which is maximum 5.5% in Maharashtra (4.5% ST + 1% Vat) How can it be affordable now.By any chance the GST will reduce the construction cost of building still do you think that builders will pass on the same to customers, infact they will now increase the cost in name of GST. This Govt is completely against middle class people.

    Reply

  4. S.T. and VAT total is 5.5%, GST is 12% which more than double. How we can expect the rates to come down. Mr Jaitley kindly explain. Why middle class is taxed so much. Any reason. 

    Reply

  5. The writer is trying to create a bubble for the buyers.. He is a real estate consultant and needs us to believe it. His idea probably is to keep already dropping buyer sentiment to go further down. Nothing wrong about saving ones job..

    Reply

  6. This is misleading. Input tax credit (ITC) was available under VAT and Service Tax also. But this article poses as its available under GST only.

    Reply

  7. Guys as all media tactic is to fool the people and prove the government works as the best and have no flaw. But this can never be the case there is flaw is very thing and Indian politics need les to say So there is big gamble everywhere big earners and this is what happens when every ruling party Best of luck for fooled people as always

    Reply

  10. Please let me know if you’re looking for a writer for your blog.You have some really good articles and I think I would be a goodasset. If you ever want to take some of the load off, I’d absolutely love to write some content for your blog in exchange for a link back to mine.Please shoot me an email if interested. Thankyou!

    Reply

  11. I must show some thanks to this writer just for rescuing me from this trouble. Just after looking out throughout the world wide web and seeing strategies that were not helpful, I believed my life was done. Living devoid of the approaches to the issues you have resolved by means of your main article is a crucial case, and ones that might have in a negative way damaged my entire career if I hadn’t encountered your web site. Your mastery and kindness in taking care of a lot of things was helpful. I don’t know what I would’ve done if I had not discovered such a stuff like this. I can also at this time look forward to my future. Thank you very much for the high quality and results-oriented help. I won’t be reluctant to endorse your web sites to anyone who should receive guidance on this problem.

    Reply

  13. I’m truly enjoying the design and layout of your site.It’s a very easy on the eyes which makes it much more enjoyable for me to come here and visit more often. Did you hire out adesigner to create your theme? Great work!

    Reply

  21. After setting things up with a wonderfully complicated and cryptic countdown, Taylor officially kicked off her complete 180 from Reputation with the vibrant “ME!” featuring Panic! At The Disco’s Brendon Urie. Complete with a stunning music video that got Brendon into a pastel floral suit (thank you, Taylor), the perfect collab is currently breaking the internet.

    Reply

  23. Moscow, despite heavy sanctions and an economy that has certainly seen better days, keeps pumping out new combat systems one after another–items like new tanks, submarines, nuclear weapons platforms and more.

    Reply

  24. A cored-out white React foam midsole with salmon plugs then completes the look. A perfect shoe for the warm weather ahead, you can check these new women’s Reacts out in detail below, and expect a release on Nike.com and at select sportswear stockists in the coming weeks for $130 USD.

    Reply

  25. “We also issued a blanket order that asked anyone who had been in the library, on 4/11 between 11 and 3 to self-quarantine, notify health services and establish that they were immune before they exposed themselves to the public,” said Barbara Ferrer, Los Angeles County’s public health director.

    Reply

  26. Lillard showed a social-media clip of him telling Westbrook, Stop running from this ass whoopin’, as Lillard grew weary of Westbrook switching off him, while Lillard continued to be Westbrook’s primary defender.

    Reply

  28. uqepuhuzgav,Thanks for ones marvelous posting! I actually enjoyed reading it, you will be a great author.I will always bookmark your blog and will xjljmxy,come back from now on. I want to encourage that you continue your great writing, have a nice afternoon!

    Reply

  31. Jones’ relatives asked Judge Joseph Marx to give Raja the maximum sentence of life in prison during the sentencing hearing. The judge said it was a “heartbreaking” case before handing down the sentence of 25 years,Jordan the minimum required under state law,Jordan for both counts,Jordan to run concurrently.

    Reply

  34. Cialis 20 Mg Comprime Pellicule Boete De 8 Purchasing Generic Dutasteride Tablets Discount Low Price [url=http://cialisan.com]cialis 20mg price at walmart[/url] Dapoxetine Purchase

    Reply

  52. xqprwwynm,If you want a hassle free movies downloading then you must need an app like showbox which may provide best ever user friendly interface.I LOve your Blog!

    Reply

  166. [url=http://retina0i0.com]prescription anti wrinkle creams [/url]
    [url=http://ventolin0i0.com]ventolin inhaler for sale [/url]
    [url=http://tadalafil1s1.com]generics online [/url]
    [url=http://lexaproa4.com]walgreens lexapro generic [/url]
    [url=http://kamagraa4.com]buy kamagra in bulk [/url]
    [url=http://doxycyclined6j.com]doxycycline hyclate 100mg bronchitis price [/url]
    [url=http://ventolinly6.com]is there a generic version of ventolin hfa [/url]
    [url=http://prednisonea4.com]prednisone 50 mg what is it used for [/url]
    [url=http://cialis0i0.com]vidalista black cialis 80 mg [/url]
    [url=http://baclofen0i0.com]baclofen dosage sizes [/url]
    [url=http://sildenafilly6.com]doses of sildenafil [/url]
    [url=http://prozacd6j.com]le generique prozac est il efficace [/url]
    [url=http://albuterol1s1.com]dry+eye+albuterol+sulfate+side+effects [/url]
    [url=http://retinad6j.com]retin a how to use [/url]
    [url=http://levitra0i0.com]levitra 20 mg price walgreens [/url]

    Reply

  361. [url=http://synthroidf5h.com]generic levothyroxine vs synthroid [/url]
    [url=http://lexaprof5h.com]how to increase sex drive on lexapro [/url]
    [url=http://xenicalf5h.com]how does xenical work male enhancement comments [/url]
    [url=http://prednisonef5h.com]how does prednisone affect the kidneys [/url]
    [url=http://metforminf5h.com]can metformin cause cramps in the lower extremities? [/url]
    [url=http://zithromaxf5h.com]zithromax 500 mg tabs for travelers diarrhea australia [/url]
    [url=http://kamagraf5h.com]kamagra store [/url]
    [url=http://prozacf5h.com]paroxetine 80 mg [/url]
    [url=http://kamagraf5h.com]kamagra translation [/url]
    [url=http://amoxicillinf5h.com]amoxicillin/clavulanic interaction with laetrile [/url]
    [url=http://metforminf5h.com]metformin india brand name price [/url]
    [url=http://lisinoprilf5h.com]withdrawl systems from lisinopril [/url]
    [url=http://synthroidf5h.com]synthroid vs levothyroxine mayo clinic [/url]
    [url=http://acyclovirf5h.com]acyclovir 800 mg three times a day [/url]
    [url=http://tadalafilf5h.com]us tadalafil samples for men [/url]

    Reply

  550. (MyLondon) – Do not deflate grapefruit or grapefruit juice with viagra without subscription as they both interact with each other and basis fettle hazards. During fleshly project if you caress numbness, dizziness, strongbox pang, or anything else, right now perform to your doctor. If erection stays after more than 4 hours try medical attention. Do not , health care insurance companies, stroke shy. March 22, 2018 2:29

    Reply

  639. [url=http://lotrisonebest.us.org]http://www.lotrisonebest.us.org[/url]
    [url=http://levaquin.us.com]http://www.levaquin.us.com[/url]
    [url=http://anafranil.us.com]www.anafranil.us.com[/url]
    [url=http://tadalafil02.us.com]http://tadalafil02.us.com[/url]
    [url=http://orlistat.network]http://orlistat.network[/url]
    [url=http://glucotrol.team]www.glucotrol.team[/url]

    Reply