IMPACT OF GST ON REAL ESTATE
In India, The Goods and Services Tax (GST) is one of the most revolutionary tax-related reforms. Instead of different types of taxes—central, state, local and so on, there will be only one tax: the Goods and Services Tax (GST). Hence, it aims to eliminate the cascading and conflicting taxation structures.
Like any other sector, real estate industry will also come under the scope of GST. Real estate industry in India has seen a phenomenal growth in the recent past, not just in the Tier 1 cities, but also in Tier 2 and Tier 3 cities and towns.
However, there exist doubts on various aspects such as
- whether the rate of GST will remain at par with current applicable taxes,
- Whether affordable or low-cost housing will remain out of the GST’s ambit, etc.
IMPACT ON TAXATION
| TAX | BEFORE GST | AFTER GST |
| Service Tax
|
Income tax provisions allow abatement to the tune of
· 75% on under-construction properties (of less than Rs 1 crore): service tax is calculated on 25% of the gross value which was equivalent to 3.5%. · 70% abatement for properties (of more than Rs 1 crore): service tax is levied on 30% of the value, which was equivalent to 4.5%. |
It is expected to remain around 12% or lower than 15% (the current applicable service tax rate) but not on the higher side at around 18%. |
| Stamp Duty
|
A homebuyer has to pay stamp duty to get the property registered which varies from place to place. | As GST will not subsume stamp duty levied by government, so even after GST, Stamp duty will continue. |
| Value Added Tax (VAT) | Some states like Delhi and Haryana also charge VAT on under-construction properties which is borne by the homebuyer only. | This would come to an end. |
IMPACT ON VARIOUS SUB-FIELDS
| SUB-FIELDS | IMPACT |
| Residential Real Estate
|
Investors, Buyers, and the developers also, are worried about the cost of homes. As this will increase even if the Government levies GST at 12% rate. |
| Affordable Housing | Affordable housing is currently exempted from service tax. |
| Rental Housing | Rents may either hold steady or decline marginally as a result of increase in housing stock. However, investors in the residential sector do not invest for rental yields in India. They rather focus for the capital value appreciation. Consequently, reduced rental yields will not independently impact much. |
| Commercial Real Estate | GST would be likely neutral overall (at 12% slight savings, and at 18% slight increase). |