GST – An optimistic Imprint on the Indian Realty Segment

In the last couple of years, if there is one topic apart from the much talked about passions like cinema and cricket, it has to be the Goods and Service Tax (GST). This area seems to have dominated the news cycle and is plugged to be the major taxation reform in the country’s history.
The Indian real estate sector has witnessed a remarkable progress, thanks to the current policy reforms brought about in the Indian property segment. This development unsurprisingly has been perceived not just in Tier 1 cities, but also in Tier 2 and 3 cities and towns. Regulatory alterations such as ease in FDI restrictions, Real Estate Investment Trust (REIT), Real Estate Regulation and Development Act 2016 and Goods and Service Tax (GST), to name a few are touted to bring along with themselves significant modifications that are beneficial for the efficient functioning of the Indian property sphere.
The indefinite and ambiguous system of taxation in the real estate orbit with the gamut of charged levis such as stamp duty, service tax, value added tax (VAT) etc, leads to overlying of tax bases and unwavering clashes over the tangible rate of tax to be imposed. Such imprecision’s have triggered loopholes in the practices monitored by real estate developers within each state. In such a scenario the implementation of GST clearly proves to be a win-win situation for both the players – developers and potential buyers alike. This is because with the execution of GST all numerous taxes will be substituted with a single tax, thus culminating taxation discrepancies all across India. With GST, property developers can get the advantage of gaining from free input credits on GST for goods and services procured by them, thus plummeting costs while passing the same doles to buyers. The acceptance pathway and the ensuing execution of GST has been through plentiful of twists and turns already, with much more in store.
The realty industry that is facing issues related to multiple taxation that accounts to about 25% in the form of indirect taxes, will get a sigh of relief through the Goods and Services Tax. The unchanging tax will aid developers to enjoy free input credits on the GST that has been paid for amenities and goods acquired by them. This will definitely lessen the cost and can be passed as discount to buyers. This reform surely looks at bringing along with it a great amount of liquidity for the sector and may curtail devious transactions. GST will have a flowing outcome for the homebuyers, as realty developers with more margins in their hands will be in a situation to reorganise the product cost in favour of buyers.
Currently, when we talk about purchasing a flat that is under-construction, the home buyers are required to pay both service tax and VAT. Added ancillary taxes are paid by the developer at the time of procurement, which further gets fabricated into price of an apartment. The direct impression of GST on real estate, in terms of tax discharge for developers and buyers, will be based on whether the final rate of GST is more or less than the current taxes being paid. Apart from the momentous reduction in expenses of tax management due to a solitary unified tax, the cost involved in compliance will drop down. It is important to note that the real estate sector shares a constructive synergetic relationship with more than 250 other segments such as IT, steel and cement segment. Hence the welfares or downsides of GST on each sector is sure to have an indirect influence on real estate and vice versa. At this point in time, we may perceive very restricted concrete profits on the real estate industry but the gushing results will unquestionably be higher.
Impact of GST on real estate?
With great expectations from GST to actually reduce the overpriced project cost, developers will definitely yield positive benefits from the move since homes will become inexpensive. On the procurement side, a developer has to pay a gamut of duties and taxes like excise duty, entry tax, central sales tax and custom duty to name a few. These consequently get transferred to the final valuing of the units and, thereby, to the potential buyer. With GST’s proposition of rolling numerous taxes into one, the construction cost will come down. This will bring more fluidity into the realty market and will enhance home sales. Developers will get the benefit of a free flow of credit which in turn will transform into an upsurge in the margin. During the project construction process, the developers are required to spend a lot on products which comprise of double taxation in current times. The price they bear for these comes up to 20 to 25 % of the total cost of materials they are buying. With the GST rate coming less than about 20 % will diminish the production cost for developers. This in turn will benefit buyers with developers being able to pass on a part of profit to them.
Undoubtedly, the GST reform will be game-changer for Indian property industry, by including more than sixteen major taxes and tariffs into a lone united tax. What’s more, this integrated tax regime will halt the undesirable double taxation practise hurting end-users involved in the real estate sector. Further it will generate a level playing arena for organised entities with unorganized players being brought under the ambit of taxation. By imposing translucent transactions throughout all spheres, this will indeed be a blessing in disguise for real estate developersand buyers alike.

How does a buyer benefit from GST?
Since buyers are not accountable to pay indirect tax while purchasing properties that are ready-to-move-in, GST tends to have little impact on buyers. For transactions of under-construction property buyers are required to pay service and VAT tax forcing most buyers to opt for home loans to fund their purchase. Most buyers refrain from doing a proper study of the various taxes that they are required to pay additionally. With uniform taxation like GST, that comprises everything that they need to pay, the entire process of payment will become really smooth for the buyer. In such a case, even a higher rate would be more tolerable to him than an absence of precision.
With the long wait for GST almost wrapping up, its influence on the Indian property market is likely to be positively felt by property developers as a result of predictable free credit flow. GST is all set to pour its ability to deliver greater clearness into operation of real estate sector and will offer an audit trail for the better monitoring of the sector. This alone should help form a sturdy base for the country’s evolution and advance for years to come.

 Mr. Harjith Bubber, CEO & MD, CCI Projects Pvt Ltd.