How GST Implementation Would Be Helpful for Real Estate?

Why is the Goods and Services Tax (GST) a welcome change for realty? Read on if this topic piques your curiosity as a property developer or seller.

The Goods and Services Tax (GST) is an effort toward simplifying the process of taxation by bringing different types of taxes under one umbrella. As simple as it seems, the implementation of GST entails far-reaching effects across sectors. Real estate is indubitably part of this spectrum.

Real estate has evolved by leaps and bounds over the last 15 years and will continue this upward trend in the years to come. Properties have always been looked upon as a lucrative investment option. GST promises to reduce the cost of ownership if its rate is lower than the summation of all the existing taxes.

Tax management is a challenge in the dynamic domain of realty, as any property purchase transaction is governed by a number of indirect taxes such as Value Added Tax (VAT), stamp duty, and service tax. With GST, all indirect taxes pertaining to property deals would be absorbed into one large cover.

We are aware that the effects of GST implementation are not restricted to buyers; developers play a significant part in the story, as they are the ones who initiate projects. Be it procurement of land or a redevelopment project, taxes rule the roost at every stage of property development. In the current scenario, taxes are levied at two levels: center and state. The state taxes the goods and materials, and the center taxes the services. Such a taxation process adds to the complexity of real estate deals, and it is the end customer who bears the brunt of dual taxation. GST implementation promises to put an end to the woes faced by property buyers, as a uniform rate would make it easy for the buyers to interpret the nitty-gritty of property dealings. Even though buyers may need to pay a slightly higher price, GST is sure to simplify the process of compliance to a great extent.

What is the probable impact of GST on developers?

During the procurement of land, developers are required to pay a host of taxes, such as Central Sales Tax, Excise Duty, and Customs Duty. Developers’ expenditure on construction materials comes to be 20 to 25% higher owing to indirect taxes. If all these taxes were to be subsumed, the cost of procurement and development would drop. This would translate into reduced costs for the buyer, which would eventually lead to a boost in sales. However, the actual impact on property prices would be based on the final GST rate.

Given that interdependence is an industry norm, real estate has close relations with other sectors such as finance, IT, steel, and construction. Therefore, if any one industry was to benefit from GST implementation, all the related sectors would simultaneously reflect the positive impact.

Transparency is a major advantage of GST implementation; a unified tax structure makes tax calculation a more comprehensible process for not only the industry bigwigs but also the end customer. Tax evasion would reduce significantly after GST enforcement, as a unified structure leaves no room for manipulations.

How would GST influence the economy?

Considering the booming trend in realty, the contribution of this sector to India’s gross domestic product (GDP) would be 5%. GST itself is estimated to account for 2% of the country’s GDP. 

Is there any section that would not witness the impact of GST?

Indirect taxes are not levied on possession-ready property, so resale dealings would not be affected significantly by GST implementation. 

In conclusion, GST implementation would prove to be a boon for developers and buyers alike, provided the standard rate is low. Buying high-end luxury apartments in OMR, Chennai would no more be a distant dream, which is a good enough reason to cheer. 

This is a guest post by Pooja