The real estate sector has been going through some crucial changes lately. Demonetisation discouraged cash dealings involved in the sector, while the implementation of Real Estate (Regulation and Development) Act made builders more accountable. The sector is likely to streamline further after the implementation of Goods and Services Tax (GST).

If you are a real estate buyer and willing to acquire a ready-to-move property, you will have to shell out more after the implementation of GST. New and under-construction properties will attract 12% GST (Stamp duty and registration charges will be additional.)
 

Download our most popular free guide - 10 Steps to Select Winning Mutual Funds

The real estate sector has been going through some crucial changes lately. Demonetisation discouraged cash dealings involved in the sector, while the implementation of Real Estate (Regulation and Development) Act made builders more accountable. The sector is likely to streamline further after the implementation of Goods and Services Tax (GST).

If you are a real estate buyer and willing to acquire a ready-to-move property, you will have to shell out more after the implementation of GST. New and under-construction properties will attract 12% GST (Stamp duty and registration charges will be additional.)

As compared to previous rates, the GST rate is higher by around 3%-4%, even after considering the difference in the Value-Added Tax (VAT) charged under various states in the previous taxation system. This will make ready-to-move properties relatively expensive.

Expressing his views about these developments Mr Surendra Hiranandani—Group Chairman and Managing Director of Hiranandani Group said, “While developers might still get some benefits for projects that are in nascent stages, they will have to bear the tax burden for the ready-to-move-in projects since they are kept out of the GST ambit.”

However, it is unlikely that builders will absorb the losses borne on account of the increased tax. Since they won’t have any facility to claim input tax credit, they will try to pass it on to the property buyers. And this may create some disagreements among developers and buyers. Providing more information on the impact of GST on real estate sector, Mr Anshuman Magazine, Chairman, India and South East Asia, CBRE said that, “Work contracts addressing construction intended for sale were classified as a service and were placed in the 12% category. It is noteworthy that the value of land would be included in the amount charged from the end-user. Pradhanmantri Awas Yojna (PMAY) has been exempted from GST. Unlike the previous regime, input tax credit has been permitted for the real estate sector.” 

It is noteworthy that an ‘anti-profiting’ clause under section 171 has been included in the GST Act to ensure no business profits out of the new tax regime. It remains to be seen how meticulously the Government monitors developers.

Mr Shishir Baijal—Chairman of Knight Frank India—a leading international Property Consultancy is positive on the rollout of  GST., "The intention of GST is to bring in efficiency in the entire tax system, and its implementation will see some teething issues. But eventually it will pave the way for an extremely efficient tax system for the country", he expressed.  

What’s the positive for property buyers?

The biggest positive is that the implementation of GST will bring more transparency and discipline to the realtors operations. As you might be aware, any real estate project has three inputs—land, material, and labour. In the older taxation system, VAT was levied on material cost and service tax on labour cost. Therefore, in the absence of information, it was difficult for the customer to know whether or not the builder was doing the right classification.

However under GST, there’s no such distinction. Single tax rate will make things less complicated for the buyer. Plus the facility of claiming input tax credit available to builders will ensure that the tax is imposed only on the value additions and there’s no double taxation.

Besides, RERA (the Real Estate Regulation Act) provisions would come to rescue of buyers and streamline, regulate the way transactions are carved in the real estate sector. Having said that, as a buyer you have to be cautious and conscious of the choices you make while purchasing a property, rather than facing a nasty surprise later.

Happy investing!

Editor note :

If you wish to take a calculated risk and invest in equity funds, PersonalFN can help you pick hidden gems or lesser-known funds that are capable of generating big gains for you.

PersonalFN has released a report 5 Undiscovered Equity Funds especially for investors like you.

These undiscovered funds can help you counter inflation by a substantial margin. Subscribe today!

Must Read

Top 10 Mutual Funds For SIP: Don't Ask Alexa Or Google

Everything You Need To Know About Tax Planning

All You Need To Know About Retirement Planning

As compared to previous rates, the GST rate is higher by around 3%-4%, even after considering the difference in the Value-Added Tax (VAT) charged under various states in the previous taxation system. This will make ready-to-move properties relatively expensive.

Expressing his views about these developments Mr Surendra Hiranandani—Group Chairman and Managing Director of Hiranandani Group said, “While developers might still get some benefits for projects that are in nascent stages, they will have to bear the tax burden for the ready-to-move-in projects since they are kept out of the GST ambit.”

However, it is unlikely that builders will absorb the losses borne on account of the increased tax. Since they won’t have any facility to claim input tax credit, they will try to pass it on to the property buyers. And this may create some disagreements among developers and buyers. Providing more information on the impact of GST on real estate sector, Mr Anshuman Magazine, Chairman, India and South East Asia, CBRE said that, “Work contracts addressing construction intended for sale were classified as a service and were placed in the 12% category. It is noteworthy that the value of land would be included in the amount charged from the end-user. Pradhanmantri Awas Yojna (PMAY) has been exempted from GST. Unlike the previous regime, input tax credit has been permitted for the real estate sector.” 

It is noteworthy that an ‘anti-profiting’ clause under section 171 has been included in the GST Act to ensure no business profits out of the new tax regime. It remains to be seen how meticulously the Government monitors developers.

Mr Shishir Baijal—Chairman of Knight Frank India—a leading international Property Consultancy is positive on the rollout of  GST., "The intention of GST is to bring in efficiency in the entire tax system, and its implementation will see some teething issues. But eventually it will pave the way for an extremely efficient tax system for the country", he expressed.  

What’s the positive for property buyers?

The biggest positive is that the implementation of GST will bring more transparency and discipline to the realtors operations. As you might be aware, any real estate project has three inputs—land, material, and labour. In the older taxation system, VAT was levied on material cost and service tax on labour cost. Therefore, in the absence of information, it was difficult for the customer to know whether or not the builder was doing the right classification.

However under GST, there’s no such distinction. Single tax rate will make things less complicated for the buyer. Plus the facility of claiming input tax credit available to builders will ensure that the tax is imposed only on the value additions and there’s no double taxation.

Besides, RERA (the Real Estate Regulation Act) provisions would come to rescue of buyers and streamline, regulate the way transactions are carved in the real estate sector. Having said that, as a buyer you have to be cautious and conscious of the choices you make while purchasing a property, rather than facing a nasty surprise later.

Happy investing!

Add Comments