Before the introduction of Goods and Services Tax (GST), paying multiple taxes in a complicated system was the biggest challenge faced by the real estate industry, thus resulting in disparity in property rates across the nation for which home-buyers bore the brunt. Today, under the GST regime, under-construction properties are taxed at 18 per cent, applicable only to 2/3 of the value of the property. It excludes ready-to-move-in properties and residential schemes sponsored under the Pradhan Mantri Awas Yojana (PMAY). The remaining cost is considered as per the value of the land. Eliminating stamp duty and registration charges, the actual tax rate comes to 12 per cent. Realtors can benefit from input tax credits, which are ideally transmitted to customers. GST on under-construction houses is reduced to 8 per cent from 12 per cent for affordable housing upto 650 sq.ft. This has been a big positive move to boost demand in the affordable housing segment.
Future reports about GST state that the real estate sector will be brought under the GST regime without stamp duty and other levies like property tax. However, The Associated Chambers of Commerce and Industry of India (ASSOCHAM) is of the opinion that stamp duty should be included under GST and should not add to the cost of housing and construction as it will result in more confusion. Recently, the Congress demanded petroleum products and real estate be brought under GST. On the other hand, the Maharashtra Government has asked the GST council to re-consider its decision after an in-depth study, including its impact on the State finances.
Pre-GST home loans were taxed at 15 per cent while currently it is taxed at 18 per cent. Although GST is not applicable on MCLR-linked mortgage pre-payment fee, the pre-payment fee for a fixed rate mortgage remains 18 per cent instead of 15 per cent. The Indian real estate segment has been experiencing significant transformations such as RERA that ensures transparency and timely delivery of projects. The residential segment will definitely benefit from GST as it will attract potential customers. The relative simplicity of the system will benefit all stakeholders in the realty market.
Let’s see how GST impacts the construction industry. As far as building materials are concerned, GST brings no major changes. Pillars and iron rods are being taxed at 18 per cent from the previous 20 per cent. Cement is currently taxed in the highest slab of 28 per cent. The tax rate on fly ash bricks and sand-lime bricks has been reduced to 5 per cent from 6 per cent. These marginal variations can make a big difference. In the luxury segment, the basic construction cost may reduce marginally, but as the input tax credit is limited to 12 per cent, it will not be sufficient to bring down the tax liability completely because of the taxes paid on other expenditures. Construction materials are under the 18 to 28 per cent slab, but as the input tax credit is available on products utilised for construction, the overall tax incidence is neutralised.
However, the abatement available for the land cost, for calculating service tax on under construction projects is still unclear. The abatement rules and the input tax credit facility for developers will determine if the effective tax incidence on real estate has increased or decreased under GST. On the other hand, affordable housing schemes are excluded from the GST regime and the unified tax system has been a required reform that has brought the much-needed transparency and simplicity in the housing loan service and real estate sector.
Source : TOI
