The introduction of GST on July 1st, 2017 was a significant moment in the history of India. It was defined by the establishment of a single, uniform direct tax regime, aided by abolishment of cascading taxation, elimination of tax evasion, and removal of multiple bureaucratic layers – a necessary step to consolidate the market. Consequently, GST continues to have a far-reaching impact on all the industries and economic sectors, including real estate.
With an average contribution of 5-6% to the country’s GDP, real estate is a vital sector of our economy, and plays a huge role in building the country’s infrastructure and providing employment to millions. However, despite this monumental shift in India’s tax regimen, many developers, home owners and property buyers still remain in the dark about all the structural and legislative changes in place with respect to GST and how it affects real estate.
While GST is poised to be beneficial to the real estate segment in the longer run, how does it impact the industry and home buyers now? For example, suppose you want to buy an under-construction property in Thane – how do you come under the purview of GST? Many such questions linger on in the minds of our peers and our customers. Let’s assess them.
Before the application of GST, home buyers were required to pay state-levied VAT, stamp duty, and registration charges along with the centre-levied service tax. For under-construction properties, this figure came down to roughly 9-10% of the property. Now, under GST, you will be required to pay a single 12% GST along with stamp duty and registration charges for under-construction projects.
If your under-construction property falls under the Credit Linked Subsidy Scheme (CLSS) (i.e. you are eligible to avail of interest subsidies from the Government or under the PMAY Scheme), then you will only be required to pay 8% GST.
GST is also a ‘pass through’ tax. Only the excess of what is collected by the business/individual over what is paid by that business/individual, is paid to the government. For example, if a real estate developer collects GST of Rs 10 from his/her customer in selling them their home, but pays GST of Rs 5 to the contractors appointed for the construction of the home, only the difference (i.e. Rs 10 – Rs 5 = Rs 5) will be paid to the government. This has resulted in a dip in the under-construction property prices as developers have decided to pass on these ‘input tax credit’ benefits to home buyers, or are offering ‘all-inclusive prices’ to their buyers.
If you are looking to purchase a ready-to-move-in project, like one of our ready possession 3 BHK apartments in Goa, then you don’t need to worry about GST as ready properties do not have any GST levied on them. You will only be charged the stamp duty, which varies from state to state.
As for home loans, GST levied on processing fees is 18%. This has led to a slight increase in the processing fees cost. Residential rental incomes do not fall under GST’s purview as of yet. However, if you are renting out a property for commercial purposes, get ready to pay 18% GST to your lessor/landlord.
Establishment of GST in real estate has ushered in increased trust between home buyers and developers, owing to increased transparency. Previously, different contractors charged VAT and service taxes, while procurements had OCTROI and other duties levied on them. It was confusing for the home buyer. GST has subsumed all these levies, making the tax environment far easier to navigate for home buyers and home builders, leading to increased trust, transparency, and therefore, a healthier market.
Since a vast array of commodities fall under different GST tax slabs, construction materials such as cement, bricks, rebar, etc. now have pre-defined GST rates which has subsumed additional taxes and levies. Complexities with billing and procurement, therefore, has dramatically reduced for developers due to incorporation of GST as an umbrella tax that has absorbed procurement taxes such as customs duty, entry tax, OCTROI, excise duty, etc.