Real Estate Sector and GST

The real estate sector is the second largest employer in the country after agriculture and ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. The housing sector alone contributes 5-6 per cent to the country’s Gross Domestic Product (GDP). Real Estate till now had been put under a multitude of taxes including service tax, and VAT among others. So developers like us are eagerly waiting for GST, since Goods and Services Tax will be replacing the frequent state and the local taxes with one single and unified tax. From the point of consumers, the impact of GST could mean increase in prices. It will take 6 to 12 months for the prices to pan out with the implementation of both RERA and GST. A single rate tax structure of 12% for home-buyers is a welcome move along with reduction in paper-work. Together with RERA, GST will go a long way in bringing out transparency in the real estate sector thus increasing buyer’s confidence and improving market sentiments. In some cases, even input credit will be more than the GST levied on the finished product, but a developer can claim a maximum credit to the extent of the GST he would be paying on the finished product. As per the provisions of GST, it can be expected that GST may lead to input cost deflation for

As per the provisions of GST, it can be expected that GST may lead to input cost deflation for construction industry as credit of taxes paid on various inputs used in the construction activities will be available which is not available in current tax regime. GST will also help cut cash component in construction as products have to be sourced from registered vendors to get input tax credits. As per the announcement from Finance Ministry in media it has been expected that there will be no tax under GST for housing projects which comes under Affordable Housing scheme. Also for avoiding extra burden of tax liability on inputs and input services used for projects covered under Affordable Housing scheme should be allowed to be exempt.

This will ensure cost inflation impact is not passed by promoters/developers to customers who purchase residential units under the Affordable Housing scheme. India has huge potential to attract large foreign investments into real estate. In the coming years, the opportunities in the real estate sector will attract more global players to India and hence will help the industry to mature, become more transparent, improve management and adopt advanced construction techniques. GST & RERA will surely bring in the boost within the Real Estate sector through their progressive and diversified role.

 

Mr. Pakshal Sanghvi, Director, Sanghvi Realty

 

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