The passage of the historic GST Bill was one of the most awaited reforms for triggering a revival in the Indian realty landscape. While the move is expected to benefit all stakeholders, 99acres analyses how will the homebuyer benefit from this uniform tax system.
India witnessed one of the biggest taxation reforms on August 3, 2016 – the passage of the Goods and Service Tax (GST) Bill by the Rajya Sabha. The move is touted to be a harbinger of change for the real estate sector which is currently plagued by a myriad of indirect tax issues, both at the centre and state level.
Stressing on the need to have had the GST Bill implemented long ago, Dhiraj Jain, Director, Mahagun Group says, “Currently, homebuyers are under the pressure of two forms of taxes; service tax and VAT on the purchase of residential units when booked prior to its completion. There are numerous components of non-creditable tax costs such as CST, entry tax, customs duty, excise duty, etc. which are duly paid by the developer on the procurement side, which are basically ingredients for the cost pricing of the units.”
All these taxes, together, result in a massive escalation in the price of the final product. Implementation of a uniform tax based system would not only help in bringing down the overall expenditure from a homebuyer’s pocket, but will also induce transparency in the sector.
Here are some of the most direct ways in which a homebuyer will benefit from the implementation of the GST Bill -
Single tax = reduced prices
Roughly, these indirect taxes amount to over 25 percent of the cost of a property. Introducing a single tax could help reduce the overall tax bearing on an individual. Kushagr Ansal, Director, Ansal Housing says, “Now days, there are developers and builders who are constructing projects in different states, specially tier 2 cities and thus have to abide by the state specific VAT laws, service tax and corresponding compliances. The presence of several indirect tax components faced by the developers at present are a major cause that bring tax inefficiency in this sector. A simplified tax structure would mean that property prices would come down considerably, enabling better affordability for people looking for property options in tier 2 and 3 cities.”
The real estate sector has been largely plagued by unscrupulous transactions and fraudulent activities. A comprehensive and uniform tax structure would instil greater transparency in the sector. Ashok Gupta, CMD, Ajnara India Ltd, avers, “A single tax rate across the country will promote fair practices which will further encourage transparency and less evasion in the sector that supports in future growth of demand for real estate.”
Growth of realty
Implementation of GST will basically work on three major elements for this sector - simplification of tax structure, reduction in construction costs and better transparency. Altogether, improved buyer sentiments and reduced cost of construction and purchase are expected to give the required fillip to the otherwise grim market. Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz, asserts, “Speaking about its contribution post acceptance, we are predicting a nationwide realty sector growth by almost 15-20 percent, than projected in the course of next 5-7 years. There will be a quick reaction towards the sector by its customers as demand is bound to increase due to reducing costs and improving transparency in the sector that has been making this sector suffer for long now.”
GST Bill is expected to boost employment opportunities in the manufacturing and associated sectors. While this is touted to be an indirect benefit to the masses, it will definitely enhance the buying capacity of a large number of homebuyers.
Explaining the same, Anshul Jain, Managing Director, India, Cushman & Wakefield says, “Being a destination-based, indirect tax aimed at bringing in more efficiency and rational taxes, GST could actually help to lower manufacturing/processing, logistics and distribution costs, which could further revitalize the manufacturing and associated sectors (warehousing and logistics) by making them more price competitive and boost the overall Indian economy. This would definitely boost the PM’s ‘Make in India’ initiative and create more employment. The warehousing and logistics sector, which is essential to raise the competitiveness of India’s manufacturing sector, would be especially benefitted by the GST as it would bring about increased supply chain efficiencies. GST will ensure the abolition of various central, state and local taxes, enabling easier transfer of goods between states, which would give way to larger, centralized and advanced warehouses that would serve as hubs to service various states.”
While the real estate industry has waited for the passage of the GST Bill with a bated breath for a long time, there are still major challenges in the forefront. Neha Hiranandani, Director, House of Hiranandani, elaborates, “The bill treats construction activities as “work contracts” but is silent about guidelines on valuation of land and has kept the sector away from input tax credit. This could mean higher costs for the end consumer. Also, implementation of the bill will not subsume the stamp duty levied by the states, who may increase it from time to time to meet revenue targets thereby pushing costs higher for the buyer.”
It will be important to see what the final rate of GST would be, because if the rate is higher than the existing cumulative taxes, it will certainly be a dampener for the market as it will increase the final cost of an under-construction flat and defeat the purpose of the bill. While the intentions are noble and correct, we feel for the bill to be successful, all states must implement it together and at the same rate, else it will be cumbersome and bring additional compliance on an already strained sector.
Here are a few more experts giving their reactions and suggesting ways to make the bill more effective in the favour of homebuyers –
Niranjan Hiranandani, MD, Hiranandani Communities and Founder and First President, NAREDCO Maharashtra
From a home buyers’ perspective, the key factor would be the GST rate applicable on purchase of residential units. We hope that the GST rate will be moderate, and the transactions get covered under the lower rate schedules.
Arjunpreet Singh Sahni, Executive Director, Solitairian Group
The GST would have been more homebuyers' friendly if stamp duty had also been subsumed into it. Still, in a nutshell, GST is here to transform the growth prospects of the real estate sector by bringing more transparency. Now, the long prevailing gloom of slow demand is just a matter of few more days.
Anshuman Magazine, Chairman, India and South East Asia, CBRE
This bill has been long awaited by the industry. This is a major tax reform for our economy, which will transform India into a single market. Once implemented, it is likely to have a positive impact on the real estate sector, which has linkages with over 250 ancillary industries. Unified taxation will also infuse the much needed transparency into our taxation system.
Vikas Bhasin, MD, Saya Group
The only dampener for the realty sector can be high GST rates. This will counterpoise any possible gains on incremental credits. Also, stamp duty is not proposed to be incorporated under GST and will thus continue to remain as it is at present.
Rohit Gera, MD, Gera Developments and VP, CREDAI – Pune Metro
We hope that the final bill takes care of the homebuyers and does not raise the cost of homes by raising the tax incidence on homes. Stamp duty will continue and there is already double taxation on this. The first time stamp duty is paid on land, then the flat buyers pay Stamp duty on the flat without any credit for the land payment.