Ready-to-move-in Flats to Cost More With Implementation of GST
Ready-to-move-in Flats to Cost More With Implementation of GST

As GST has been implemented on 1st July 2017, the move has come as bad news for those, who are looking for a read-to-move-in property. GST on real estate has now confined consumers to now look for under-construction homes. It is due to the fact that the developers who have a large number of unsold flats are considering to pass on their higher tax burden to consumers.

However, the cost of new flats will be lesser, providing a sigh of relief to the builders of upcoming projects.

With GST for real estate, the tax on under-construction projects has risen up to 12 percent that is an increase of around 6.5 percent. The actual GST rate of real estate is 18 percent, but only one-third of the tax is allowed to be debited from the land value, from the total amount charged by the builder.

The option of full input set-off credit is not applicable on ready-to-move properties, hence developer has to carry the load of higher tax. This is the reason that developers are passing this extra burden from their shoulders to end-consumers.

Also read: Impact of GST on Indian Real Estate

House of Hiranandani Chairman and Managing Director Surendra Hiranandani has 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.”

GST impact on real estate will attract the tax on under construction projects of 12 percent, an increase of 6.5 percent for the buyer, said Gera Developments Managing Director Rohit Gera. He further added, “There is an option of getting full input set-off credit on all input side if GST is paid by them, but this is not applicable on ready-to-move-in properties.”

Gera said, “as a result, developers will either have to bear the burden of the tax since it cannot be passed on to the end consumers or the GST rates of apartments that are ready-to-occupy will increase to the extent of the taxes.”

CEO of Bengaluru-based mid-market developer Citrus Ventures, Vinod S Menon says, “everybody talks about the positives GST effect on real estate. But the devil lies in the details and no one seems to have any clarity on that.” Menon also said though one-third deduction makes the effective rate 12 percent, with current effective VAT plus service tax rate being nine percent, there is still a three per cent incremental charge.

Since no retrospective claim of credits is possible, this will be a bone of contention between customer and developer as to who will bear this. Coupled with the new regulator RERA, GST will increase paperwork and thus the overall cost, which is one of the GST impacts on real estate in India, he further added.

On the other hand, Knight Frank India Chairman Shishir Baijal said like the note-ban, GST would trigger some momentary disturbances but augur well for the industry in the long term. He said, “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,”.

SILA founder and MD Sahil Vora has similar views as Shishir Baijal. He said, “the GST impact on real estate will bring some pain and forced consolidation in the sector, but in the long-run everybody will benefit”.

“But the affordable housing sector is happy as there is no tax on it. Since almost 70 per cent of the market caters to the middle to high-income segment, the impact of GST on real estate could shift focus, particularly of smaller developers towards high volume, low to medium income segment,” said Sachin Sandhir of RICS Global.

The Chairman of Anarock Property Consultants, Anuj Puri said, GST on real estate will not impact affordable housing sector as there will be no tax under GST for the affordable housing scheme.

GST for real estate will also attract international residential investment as it has been seen globally that a unified tax structure has been one of the many catalysts for increased investments. Additionally, sectors ancillary to real estate will see improved supply chain efficiency with the removal of various federal tax barriers and creation of a common market, accelerating the delivery of goods,” said Ram Chandnani of CBRE South Asia.

Atul Chordia of Panchshil Realty said the effective 12 percent GST rate on real estate is higher than the industry as we tend to use the best-in-industry material, much of which will fall under the 28 percent slab leading to higher overall cost.

Rohit Jain is a partner at Economic Laws Practice and according to his views, there isn’t enough clarity on transitional provisions under GST, whether it pertains to the credit of inventory, credit on unsold stock or the tax implications where part payments are made under the pre-GST and part under the new taxation system.

For more GST news, updates and other impacts of GST in real estate, you can visit our website.

Also read: FAQ related to GST on real estate

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