GST is a tax indirect in nature and is known as the Goods and Services Tax. It has been passed as a bill in the year 2016 in Parliament ad has been said to have many benefits and effects on the daily functioning of the business. It is said that GST will be a great game changer in the real estate sector. If the current rates in comparison with GST are higher, it will be even more helpful for the investors. There are various taxes in India which are applicable when you purchase any goods or commodity or even a service. However, with the implementation of GST, the various taxes will be cancelled and make the life easier for the consumers. Let us look at the GST impact on the real estate industry.
Tax Credit
All the builders are concerned about the clause of input tax credit not being added to the current GST bill. This is a credit received by the builders and consultants who would get a return on the tax paid. The main reason that it is a cause of concern it that builders will not get the profits which are paid by the consumers as a tax that is as high as 20% – 22% as compared to 14% – 16% currently. The next step is to implement the GST in all states and get an approval from the Central and State Governments to make it work all over the country.
Other Taxes
There are many taxes that come under this category which is charged separately currently and will need to be taken care of. VAT and Service Tax being the major stakeholders in this category will need to be dealt with and may lead to a reduction in compliance to bring the efficiency which was missing since so long. However, it is early to comment if the impact of GST will bring in the real estate conditions to better up or not. It is also said that globally there is a gap of one year in the introduction and implementation stage of GST and that the government should consider this and provide a breather time to the sectors to get accustomed to it.
Profitable Sectors with Implementation of GST
The most profitable sector with the implementation of GST will be logistics and warehousing industry. They will be free from all the central, state and local taxes and make the transfer of goods easier between states. This will also reduce the tax burden on the manufacturing industry thereby making the real estate rates to dip. Every state has a different tax levied on the real estate industry making it difficult and expensive for the small investors. However, with the GST in place it will become a unified tax system and make everything a price shop.
Deal with Multiple Uthorities
With the many taxes and reforms, the real estate has to deal with separate authorities each time which makes it difficult in exercising the transactions. However, with the unified taxes, all these multiple dealings will come to a stop and one path will be followed. This will bring down the real estate rates as the taxes will be already aligned and the state and central governments will need to work accordingly.
With the current impact of GST, it is forecasted that the GDP growth of India will increase by at least 1% which is a great boost. This can reduce the prices of the real estate industry only if the prices do not increase with the implementation of GST.
The main impact GST will have on the rates is the free input credit which will be passed on to by the developers to the investors. This can be around 6% of the current zero value. Since the value of the transaction is huge, 6% is a great start for the rates to dip in the sector of the real estate. In the commercial property sector, GST will help to reduce the construction cost by benefiting from the input credit. However, with the implementation of GST, the rates for under construction real estate will be higher than the current rates. This can be a major cause of debate with the GST coming in the real estate industry.
