The Impact of GST on The Real Estate Sector

The GST bill has been making rounds in the halls of the parliament and on the internet for a long time. The Bill, after being passed in the Lok Sabha looks set to be executed on July 1, 2017. 

The real estate sector is sure to bring in a lot of changes in the Real Estate Sector, a pivotal sectors of the Indian economy. With a ton of positive changes on the outlook, the bill will bring a lot of relief to the sector.  The supply chain mechanism in real estate sector will be revamped after its complete implementation and it will be great to watch the effect that it has on the complete sector of real estate.

GST for the Real Estate Sector

GST aims at bringing a lot of transparency in the real estate sector and minimise unprincipled transactions. Under the current tax laws, VAT and Service Tax are being charged by a number of contractors and excise duty, entry tax, octroi is paid on the procurements. But, the GST law will increase the edge in the hands of the contractor/developer by removing all the taxes mentioned above.

GST is being billed as a gamechanger for the sector as it will replace several taxes, cesses, and surcharges at one go. Once implemented and followed, the real estate sector will come under the GST domain within one year of its rollout.

Will homes cost more for home buyers post-GST implementation?

The current description of the GST bill states that the leasing of a building, in parts or as a whole – including residential and commercial building, would be considered service rendered as part of the bill.

While currently the service tax is only levied on the commercial and industrial units which have been rented out and the residential unit is exempted from such taxes. Now, the service tax and VAT will be replaced by the Central GST and State GST, while the stamp duty will remain unchanged as it is out of the marks of GST. Therefore, the only two aspects that will define the impact of GST on the sector are – the rate and abatement for land value in total agreement value of residential and under- construction homes.

On an overall level, with the implementation of the GST in July, the home buyers may need to bear vaguely higher taxes but they could still pay lower prices for the property if the builders pass the profit of input credits, to their customers.

Key takeaways

Here’s a summary of the impact of GST on the real estate sector:

  • Under-construction homes would attract GST.
  • Leasing and renting of land and building would also invite GST.
  • GST to be levied on EMI of any under-construction property.
  • Tenancy and leasing would be considered as rendering the service under the GST bill.
  • Real estate to come under the GST ambit within one year of the roll-out, which means stamp duties will continue to be charged until then.

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