GST Won’t Be A Burden On Home Buyers As There Won’t Be Any Increase In Prices

Homebuyers are unlikely to be burdened by the introduction of GST with additional cost and tax outgo. The real estate sector will be partially brought under the GST ambit via works contracts levied at 12 percent tax. This will keep the impact of the introduction neutral on homebuyers. The key indirect taxes currently levied on real estate are service tax, value-added tax and excise duty. This totals to around 9-11 percent. Stamp duty is excluded being a state levy.

These will be subsumed in GST as the new indirect tax regime will also allow input tax credit for developers. As per The Economic Times, the real estate sector is still awaiting clarity on the abatement rate for the land cost. Thus, the proposed rate of GST, which is at 12 percent, must not lead to rise in property prices, believes partner and national leader-indirect tax at PwC India, Pratik Jain. The sector is also allowed the entire input credit. This will also reduce the cash component in the economy as people will be incentivised to come within the tax net.

Buyers who are going for under-construction properties, the final impact will be the net effect of savings on currently unabsorbed input taxes and also the GST rate increment over current tax rates. Central sales tax and excise duty on construction materials, currently paid by the project developer, are not offset against indirect taxes collected from customers. The key taxes are initially paid by the developer and then passed on to the consumers. The new tax regime will allow realty developers to get credit for input taxes paid.

This will in turn help in lowering costs. The works contract between service provider and realty developer has already been brought under the GST ambit. It will be interesting to see whether other components such as preferred location and parking charges are also considered. Chairman of realty developers’ body National Real Estate Development Council (NAREDCO), Rajeev Talwar, has said that GST will be anti-inflationary. Hence, homebuyers won’t face any increase in prices. There won’t be any additional burden on customers.

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