By TribuneindiaJun 10, 2017

Sukhraj Nahar, Chairman and Managing Director, Nahar Group

Sukhraj Nahar, Chairman and Managing Director, Nahar Group – Real Estate Builders.

The stage is set for GST roll out from July 1, 2017. As the impact of GST on various related sectors and goods is now known, industry experts are still divided over how it will impact the real estate sector as clarity on the tax slabs for services is still awaited.

A homebuyer henceforth will have to pay 12 per cent GST to purchase an under-construction house. If we look at the pre-GST tax scenario, then it is clear that the realty sector is heavily taxed. Therefore, 12 per cent single tax structure is definitely a welcome move. As the existing multiple indirect taxes on the sector are higher, the impact under GST would be neutral.

Brakes on cash-component

Also, GST would help cut cash component in construction, as inputs have to be obtained from registered vendors to get input tax credits. The construction of a complex building, civic construction is under 12 per cent tax bracket with full input tax credit (ITC) subject to no refund in case of overflow of ITC and the better efficiency in logistics should also help reduce the prices of goods. In some cases, even input credit will be more than the GST levied on the finished product, but a developer can claim a maximum credit to the extent of the GST that he would be paying on the finished product. As per the provisions GST might lead to input cost deflation for construction industry as credit of taxes paid on various inputs used in the construction activities will be available, which is not available in the current tax regime.

Residential and commercial segments

The impact of GST may vary according to the type of project and construction methods as only under-construction flats are taxable under GST and input credits on sales of under-construction flats are available to set off. At this stage, it is difficult to comment exactly on which type of projects will have more impact and which type of project will have more benefits. As per the provisions of GST ITC Rules, input taxes paid on various elements used for the business (in our case construction activities)  will be available to offset against the tax liability i.e. GST collected from the buyers against the sale of under-construction flats subject to certain restriction. It can be said that developer or promoter needs to pay only differential tax liability to the government body. Developer or promoter has to collect taxes from customers from time to time and he is eligible to take input tax credit on goods as well as services used for construction activities. Though under  GST tax rate on under construction flats will increase to 12 per cent from the current 5.5 per cent (Service tax and VAT rates under Maharashtra State), input tax credit made available to promoters/ developers will reduce the impact of tax liability on the cost of the projects. Also GST will subsume various taxes like VAT, service tax, excise duty, entry tax, LBT (Octroi Duty in Mumbai) will also help to reduce administrative cost of developers. Under GST regime also Stamp Duty will be applicable on the sale of flats and units.

The price factor

Since the tax incidence on various monuments stones, aluminium, glass, ceramic, lamps and fittings are in the bracket of 18-28 per cent, it can be expected that cost of luxury projects and commercial projects may rise if input set off not utilised properly. As the higher rate of tax will lead to increase in construction cost. Most construction material is falling under the 18 and 28 per cent slab.

Lighter tax burden

From the consumer point of view, the major advantage would be in terms of decrease in the overall tax burden on goods. Currently it is estimated about 25-30 per cent. GST will help in free transportation of goods without stopages at the state borders for long hours for payments of state or entry tax. This will reduce the paperwork to a great extent as well.

Boost to NRI investment

GST is also likely to boost foreign investment and benefit the NRI community investing in real estate because of a seamless all-inclusive channel available. The simplification of taxation is probably the most positive aspect of GST and it will augur well for foreign investments.


Sukhraj Nahar, Chairman and Managing Director, Nahar Group


Publication Source:
The Tribune