GST Could Be a Power Booster To Realty Business
People have already started contemplating GST in different manners. The theories are many on this subject but everyone is waiting to hear how it will impact business. Realty sector is one business where people are seriously waiting to see the impact of GST on. Also there are speculations about price increase on commodities.
The long awaited Goods and Service Tax was introduced by our President Pranab Mukherjee and Prime Minister Narendra Modi, on the Ist of July. The main idea of this is to bring uniformity on the tax system. In other words, GST is destination based tax which will definitely help tax payers ease their burden. "One Nation, One Market and One Tax" is what the leaders are trying to achieve through the new system. Whether you are a buyer or seller, or investor or end-user, GST will impact everyone in this chain across the country. Lets now look into certain aspects of GST which will help the developers as well as the buyers in real estate business.
What is the impact of GST on real estate buyers and investors?
GST is a form of taxation aimed at bringing a complete transparency in the system which will help the industry attract more people, both investors and end-users.
GST in the real sense is a power booster to the industry which will slowly make the prices drop to a significant level, according to a report by Edelweiss Securities.
So far, the system of taxations has been very complicated. The buyers were asked to pay various kinds of taxes in the process of buying a property. With the introduction of this new tax system, the existing types of tax will fall under one roof thereby removing all complexities that we had before. Earlier, people had to pay vat, service tax, stamp duty, registration charges for any under-construction property. However, if it was a finished property, the buyer had to pay only stamp duty and registration. Since, Vat, Stamp duty and Registration were state levied taxes; each state was giving its own figures. The central government was controlling only the service tax. So, the calculation of taxes was really difficult and time-consuming. Now, GST charges all under-construction properties at 12% property value. This also excludes stamp duty and registration. The simple fact is that GST is applied on the overall purchase price.
A developer could take input credits on sale of under construction property against the taxes that are paid by the buyer. Earlier, the ticket price of a property is comprised of both Vat and Service tax. Since the new system does not have that, the benefit will have to be passed on to the buyer.
Benefit to Developers
The developers were earlier charged for charges like Excise Duty, Entry Tax, VAT etc. These were collected by state government on the cost of construction materials. Other than the above the developers are charged with 15% service taxes on approval charges, legal charges, labour and architect fees etc. The introduction of GST has transferred this tax burden of developers to buyers. The point to be noted here is under the current government the construction costs also have not seriously increased.
The reduction in logistics cost of expenses will result in cutting the expenses of the builder. The concept of input tax credit will give a considerable increase in profit and the tax calculations will be made simple.
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