How has GST changed the functioning of Real Estate?

By Accommodation Times Bureau

On the completion ‘One Year of GST’ various real estate players, housing finance firms, and others expressed their views on it and even gave the suggestion of what needs to be changed. The experts are CEO, MD, and CMD of their firm/company.


Arvind Hali, MD and CEO, ART Affordable Housing Finance

GST is a landmark and transformational implementation, ever, in the tax eco-system of India. Formulated to ensure tax compliance, it will benefit the economy as a whole, including the real estate sector where it will affect both, the Buyers and the Sellers  – albeit a bit differently. GST shall bring in uniformity & lowering of cost due to input credit benefit that gets transferred to the customer.

Talking about Buyers first, earlier the buyers were liable to pay taxes depending on the construction status of the property. Moreover, there was no uniformity as such tax being a state levy varied from state to state. With GST things have become simpler. GST is a uniform tax that applies to the overall purchase price in an under-construction property. All under-construction properties attract the levy of GST, currently 12 percent, on the property value, excluding stamp duty and registration charges. For Built-up ready-to-move properties, there is no incidence of GST levy – it has remained same as was in the earlier tax regime of VAT. The Government has already come up with notification of lowering of applicable GST from 12% to 8% for affordable housing as well as advisory that even this 8% will get offset for the builder by input credit. This is good news for the affordable housing customer aiming to buy an under-construction property and shall boost up demand.

Sellers and Developers, previously, were liable to pay multiple taxes on construction material costs. They also had to pay tax on services like labor, architect fees, approval charges, legal charges, etc. Eventually, this tax burden was transferred to the buyer and it came as an unclear quiz to solve at the hands of the customer.

With the advent of GST, this complexity has been simplified. Under GST tax rates have been standardized. Though some input material like cement will have an increased tax, others like iron rods etc. will be taxed at a lower rate. The reduced cost of logistics will result in a reduction of expenses as well. The input tax credits help in increasing profit margins. All this is expected to bring down the project cost to the developers, and the developers are expected to pass on the benefit of the price reduction to the buyer.

Compliance requirements are bound to increase in the GST era. The process of filing and adoption to GST ecosystem is undergoing change and it will take some time to settle for all its constituents.

I see a positive effect of this on the Real estate sector and also on the ancillary sector giving an impetus to the overall industry.

If you ask me about GST – Will it be easy ? Nope, Worth It ? Absolutely !

Manju Yagnik, Vice Chairperson, Nahar Group

“The implementation of GST has helped in mitigating the surging effect of taxes with construction services specifically being categorized as ‘supply of service’. It has also resolved long-standing issues of valuation and nature of supply. The major benefit is with regards to increased input credit on the procurement of materials. Under GST, the effective tax rate for construction services is pegged at 12 per cent (8 per cent for specified housing projects) of the entire agreement value, with an abatement of one-third being provided towards land value.

Taxation burden is high, and due to the GST regime, the gross tax outflow on investing in a property has seen a steep rise of up to 8 per cent, this is very high in terms of cash outflow. As the impact of GST on property prices is dependent on the segmental classification of projects, customers opting for affordable housing projects will reap the maximum benefits. Overall there has been an impact on pricing of residential products which is mostly been subject to demand and supply forces in the market.”

Zulquer Nain, Director- NMBPL

The Goods and Services Tax (GST) has replaced multiple taxes and also offers full input tax credit, thus helping developers avoid double taxation.

The new indirect regime has also radically altered demand pattern with ready-to-move (RTM) properties, backed by completion certificates, finding favour with buyers as they do not attract GST. On the other hand, under-construction properties, that were earlier attractive due to cost arbitrage offered by developers, fallen out of favour with buyers as they attract 12% tax, along with full input tax credit.

Buyers of affordable houses, especially those with a carpet area of 60 square feet, have benefited significantly from lowering of GST from 12% to 8%.

There was confusion in initial days of implementation as developers tried to figure out how much benefit they could get out of input tax credit and changed raw material prices while buyers were left fuming over the increase in taxation.

To an extent, it has streamlined the real estate sector and brought increased transparency in the field.

However, it still remains a halfway house, with stamp duty and registration charges outside GST ambit.

There was anticipation among buyers that GST will reduce property prices across India but this hope has not been realized. Property prices will soften only when stamp duty and registration fees are brought under GST.

Dhaval Ajmera, Director, Ajmera Group

“In one year of GST, implementation of Unitary taxation has managed to streamline processes in the sector at a great extent. However, the percentage of GST on real estate which is fixed at 12% Is very high for Metros like Mumbai. Because of the already high land rates here the additional GST is making the costs higher for all the stakeholders. Even though Rebate is availed but the ratio is very low thus making the flats expensive”

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