GST on real estate: Should home buyers wait or invest now?

With the rollout of the Goods and Services Tax (GST) from July 1, 2017, there is significant anxiousness and ambiguity among the stakeholders in the real estate market. Many are also wondering which would prove to be better – the pre-GST regime or the GST regime.

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The difference between real estate and other sectors, under the GST

Various sectors, such as electronics, automobiles, etc., are encouraging buyers to invest before the GST rollout, with ‘pre-GST sales’ and campaigns that promise to pay the difference, in case of a fall in prices. In the real estate sector, although some builders are offering pre-GST discounts, reputed developers have refrained from such promotional activities or promises. Experts point that industries like electronics and automobile, function differently from real estate. Prices of electronics and cars change on a regular basis but the real estate sector does not work in this manner. “Due to the many complex factors involved, it will not be feasible for a developer to make such a commitment. Secondly, it is highly unlikely for a situation to arise, wherein, the property prices change and call for a developer to pay up the difference,” says Vijay B Pawar, founder and director, Mirador Dewellers Pvt Ltd.

How the GST affects real estate pricing

With the uniform tax system, developers can avail of input tax credits (ITC) on the taxes paid for the goods and services purchased by them. While the value-added tax (VAT) and service tax have been subsumed within the GST, stamp duty and registration charges are out of its purview. Subsequently, ITC will have an important impact, in the cost and pricing of projects under the GST regime. Dismissing the ambiguity on how VAT and service tax are calculated, all under-construction projects will be charged at 12 per cent. Completed and ready-to-move-in projects will be excluded, due to the absence of indirect taxes here.

“Finally, to dispel doubts on whether the tax credit benefits will truly be passed on to consumers, anti-profiteering provisions have been introduced by the government,” points out Dharmesh Jain, chairman and managing director, Nirmal Lifestyle.

Pre-GST versus post-GST

Many developers have been encouraging buyers to invest, before the GST is rolled out. “Once the GST is brought into effect, property prices will increase by at least 7-12 per cent and buyers will end up paying more for the same property – a fully avoidable situation, if the purchase is made before GST is rolled out,” opines Pawar. Developers also point out that if the effective rate under the GST regime, is higher than the current applicable service tax rate, then, the cost of construction will increase, resulting in higher price for the property. “However, if the rate is relatively lower, it can result in neutral prices or lower prices for the consumers,” adds Rohit Poddar, MD, Poddar Housing.

Others in the real estate fraternity believe that even though the tax will increase from 4.5 per cent to 12 per cent, it is better for buyers to wait. All the multiple direct and indirect taxes will be removed and a single tax will be applicable on the purchase of the property, eliminating the ambiguity associated with taxes, they explain. This definite tax trail will permit greater supervision and control, which will benefit home buyers, as well as the industry. “Buyers and developers will benefit, by buying or launching projects post the implementation of the GST, as it will make properties much more affordable,” concludes Parth Mehta, managing director, Paradigm Realty.

Benefits offered under the GST regime

  • The GST allows for input tax credits (ITC) on raw materials for construction activity, under the new tax regime.
  • The 12 per cent GST tax on real estate, will permit higher supervision and control, which will benefit home buyers and the industry at large.

[Source:- housing]