How does GST affect the real estate market?


This year has seen some major reforms, starting from demonetization to the recent GST implementation. Of these, the real estate market is likely to be most impacted by the Real Estate Regulatory Authority (RERA) Bill and the Goods and Services Tax (GST). GST, in fact, is one of the biggest tax reforms in post-independence India. By implementing a uniform taxation system, GST replaces all the previously existing indirect taxes, including VAT, service tax and excise.

The implementation of RERA has already seen a lot of positive effects in the real estate sector, increasing transparency and accountability. GST will further be a boost for property buyers because of the simplified tax structure and increased accountability at every stage. It will, however, not bring down real estate prices in the short-term.

For the buyers

  • A simple and transparent tax of 12% applied on the purchase price (excluding stamp duty and registration charges) and no GST charges on completed and ready-to-move-in projects. The previous tax system of VAT system varied from one state to the other, causing a lot of confusion, ultimately leaving the buyers at sea.

  • Real estate product cost consists typically of material cost, land cost and labor or service costs. VAT is calculated on material cost and service tax is calculated on labor cost. However, it is very difficult for buyers to ascertain which taxes were calculated for which component. With GST, there is no more confusion.

  • Housing projects which come under the affordable housing scheme will not have GST.

For the developers:

  • In the previous tax system, developers had to deal with multiple taxes including customs duty, central sales tax, excise duty, entry tax, etc. Now the entire taxation burden is borne by the home buyer.

  • Major construction materials have not seen much of a difference in the tax rate

  • Cement will be taxed higher, at 28%, compared to the previous rate of 20-24%

  • Iron rods and pillars will be charged at 18%, in and around the former average of 20%

  • Transportation and logistics costs will reduce in the GST taxation system

Although GST is not going to show any major changes in the real estate sector in the short-term, buyer sentiment is bound to improve and overall, it makes life simpler for everyone involved in the real estate sector.

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