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How will GST impact the real estate sector?

, March 21, 2017, 0 Comments

gst-real-estate-sector-marketexpress-in2016 wasn’t a very good year for the real estate sector what with the government’s attempts to regulate the real estate sector with the passing of RERA (Real Estate Regulation and Development Act 2016) and the Benami Transactions Act. The demonetization drive was the cherry on top of this not so pleasant sundae – as most real estate deals are infamous for black money transactions.

With the announcement of the Goods and Services Tax (GST) and the implementation of GST for real estate, 2017 is bound to have a brighter horizon for the sector. Let’s understand the impact of GST on real estate.

The real estate sector is likely to attract a GST rate of 18 per cent and though the impact of this tax on residential real estate prices will be broadly neutral, there is bound to be some variation due to diverse taxation policies and practices across states.

Builders and tax consultants are of the opinion that the implementation of GST for real estate will help reduce the cost of ownership for property buyers, especially if the GST rate is lower than all the collated tax rates; additionally GST for real estate will definitely help bring about transparency in the buying process. Developers hope that affordable rates will most likely result in a surge in sales, which in turn will help payoff project investors.

However, the GST Law Model had stated that input tax credit would not be available with reference to goods/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery. As the real estate sector falls under immovable property transactions, there would be multiple counts of taxation on prospective home buyers as builders are most likely to pass on non-creditable tax to them (even as they pay GST on the consideration charged to them for a residential property, followed by stamp duty registration.)

Meanwhile in GST news, earlier this month, the government stated that property prices would not witness inflation once GST for real estate would be implemented. Budget 2017 saw the announcement of the affordable housing initiative under the Modi Government, naturally, developments on GST for real estate will see efforts to strengthen the initiative for affordable housing. Minister of Urban Development, Venkaih Naidu while addressing CREDAI said that the affordable housing initiative that had already been exempted from service tax, will also be exempted from the Goods and Services Tax. The Urban Development Ministry also issued recommendations to the Ministry of Finance to tax the real estate sector at a rate which is revenue neutral and not higher.

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