By Dominic Rebello
On July 1, India will implement the Goods and Services Tax (GST). The real estate sector, which accounts for about 5% of India’s gross domestic product (GDP) and is considered the second-largest employer in the country, has welcomed the 12% slab on under-construction properties, as industry experts expect reduction in rates for home buyers, which in turn will lead to a greater demand for properties.
“The 12% GST levied on finished products or works contract is a welcome move because of availability of input tax credit on products utilised for construction. The availability of credit for taxes paid on inputs such as cement, steel, paints and other items will bring down the burden of development, inversely benefitting the industry. While the input tax credit will neutralise the overall impact, a lot will depend on the proper implementation and functioning of the indirect tax claim system,” said Surendra Hiranandani, CMD, House of Hiranandani.
“The GST regime is expected to bring down the cost for developers, due to rate of 12-18% announced on inputs procured for the real estate construction. Developers will reap benefits through ITC on inputs such as steel and cement, even though there is an increase in tax -1% for steel and 4% for cement,” said Anubhav Aggarwal, MD, RNA Corp.
As a developer we are burdened by varied taxes and duties when acquiring land and procuring building materials. At times we end up paying double taxes for procurement of certain inputs, which can add up to 20-25% of the goods price. But now that the GST will subsume more than 16 major taxes and levies into a single consolidated tax, additionally it will also save time and hassle of multiple documentation required at different tax points.
Reduction in tax will lead to fall in property prices, directly resulting into higher demand, thus flourishing the market. The GST regime is expected to work cordially with the real estate sector benefiting both parties, developers and buyers,” he added.
A single indirect tax which covers all goods and services will, in the long, increase tax collection by making it easier for real estate sector and other several other businesses to comply and also moderate overall taxation levels.
“Unlike current practice, work contracts in construction will be considered as services and therefore the GST rate for the same will be effectively lower, as input tax credit (ITC) will also be available. The ITC facility will also reduce the cost of raw material procurement. GST will help cut cash component in construction, as inputs have to be sourced from registered vendors to get input tax credits. GST will result in buyers coming forward to buy property and will definitely prove to be a game changer for the real estate market in the long term,” said Chintan Sheth, Director, Sheth Corp.
Dhaval Ajmera, Director of Ajmera Realty, said, GST itself is anticipated to add about 2% to India’s (GDP). That is a considerable boost to the economy. If the economy does well, obviously, there will be more demand for real estate, and it will be a lift for the sector.“
The combined tax rule will stop the undesirable exercise of dual duty, which offended real estate and other sectors, given their flowing effect that overestimated prices for end users. With GST imposing translucent contacts across all areas, this will be a blessing in disguise for real estate players as well as for buyers, he added.
The sector, which is currently plaqued with the challenge of management of the multiple indirect tax levies, such as VAT, Service Tax, Excise, Stamp Duty and Registration Fees, hope that GST clears the air, bringing in a more comprehensive and uniform tax structure that will ensure greater transparency in the sector.
The introduction of the Goods and Service Tax (GST) is likely to have a profound impact on the real estate sector, which is currently plagued with an array of taxes at both the state and central level. With one uniform tax, buyers will no longer have to be entangled in multiple taxes that needs to be paid during property purchase, said Mir Jaffer Ali, Founder & CEO, PropUrban.
The availability of credit for taxes paid on materials such as cement, steel, paints and other items is likely to bring down the cost of development, ultimately benefitting the industry, he added.
‘’While the impact of GST on various sectors and goods is now known. Industry experts are still divided over how GST will impact real estate going ahead as clarity on the tax slabs for services is still awaited. Prima facie it looks like that there will be a neutral impact from cost perspective. Although the work contracts will attract around 12% and most of the construction material is under the 18% and 28% slab, the availability of input tax credit should neutralize the overall impact. A lot, therefore, will depend on the proper implementation and a proper system of claiming tax credits,” said Sukhraj Nahar, CMD, Nahar Group.
“Over all there is a positive sentiment in the industry with introduction of GST as India GDP and purchasing power is expected to grow and boost the over all real estate Sales. There may be a reduction in overall costs due to the butterfly effect of ITC from the source of every raw material or service used for construction in the long run,” said Punit Agarwal, CEO & MD, Nirvana Realty.
Speaking about the benefits that GST will bring to the sector, Ashok Mohanani, Vice President, Naredco West said, “Developers can majorly benefit from the facility of input credit and are likely to pass on the same to the buyers. Under the GST regime they will experience the benefit of procuring credit. Initially although builders were paying excise for fittings cement and steel, that would be involved in the property cost, they would never receive any input credit. With the implementation of GST they will be in a position to procure the credit and would be able to share the benefit with the buyers by cutting down the prices. Further GST will include a more liberal credit system with the developers passing on the aids of augmented credits to the customers. The affordable housing segment will experience a drop in home prices . GST is therefore set to be a customer-friendly move leading to low liability of tax or tax neutral.”
Publication / Source: afternoondc.in