GST and the Real Estate Sector
Indian real estate sector contributes to about 5% of India’s gross domestic product. It is second-largest employment generation sector.
Real estate sector was subject to multiple taxation, thus the implementation of GST, evades the previous multiple taxation system.
Ambit of GST under real estate, likely results in more transparency, thereby, significantly reducing the tax evaded through more efficient transaction-tracking methods and improved enforcement and compliance.
The 12% GST on construction projects meant for sale to buyers will boost the sector. Since GST is levied on a single value, thus, removing the the previous tax levying system of tax on tax, VAT on central excise duty etc.
Transfer of (completed) properties continue to be outside the purview of GST and be liable only to applicable stamp duties. However, on procurement of materials for civil construction, GST applies.
Previously, developers paid various non-creditable taxes on supplies like excise duty, customs duty, CST, entry tax etc. on the procurement side, and the buyers paid various service tax and VAT on purchase of residential units, booked prior to their completion.
GST replaces the multiple tax system with a single tax and all the developers get the input credit on the material they use for construction. This ensures a smooth flow of credits through supply chains which in turn reduces costs for all payers.
Also, the previous tax laws provided an abatement of 75% on service tax paid for property valuing less than one crore, whereas properties valuing more than one crore, allowed only 70% of abatement, resulting in a pay out of
service tax at the rate of 4.50%.
In addition to above, applicability of VAT & stamp duty was also there. Moreover, it removes abatements. However, stamp duty still continues, increasing the overall tax liability.
Affordable housing continues to be exempted from service tax under GST.
The heavily taxed real estate sector welcomes a single stable 12% GST rate, inclusive of the value of land and with full input tax credits.
Thus, the actual tax incidence under GST is lower than the previous multiple indirect taxes on the sector.
Also, input credits offset the GST rates on work contracts, thereby providing a seamless and simplified tax policy.
The implementation of GST, broadly benefits the real estate sector by ensuring a uniform tax structure and improving the tax compliance by developers. It looks at bringing in greater transparency for the sector and the possibility to minimize unscrupulous transactions.
GST as such, will have a cascading effect for the home buyers, as developers with more margins in their hands
will be able to restructure the cost of the products in favor of consumers thereby reducing the property prices.
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