In Noida, customers now pay 4.5% as service tax and 5% stamp duty on the cost of the unit. This brings the overall tax rate to 9.5%.
The implementation of Goods and Services Tax (GST) will streamline the real estate segment in India. GST is designed to encourage transparency and ease of doing business in the realty sector, but whether it will bring down property prices or not, is still debatable.
The Centre’s proposal of a 12% GST on sale of houses from July 1 has left both real estate players and consumers calculating amounts they have to pass on or shell out. Customers used to pay 4.5% as service tax on purchase of property till 30th of June, 2017 along with 1% VAT in some states in addition to the stamp duty (5%-7%) rate charged by the state.
Under the proposed GST, there will be a 12% flat tax rate on the cost of a unit, in addition to the stamp duty of 5% to 7% as per the state. This brings the overall tax rate to 17%-19%.
This will mean higher outflow on immediate basis.
By the looks of it, the answer is “yes“. But theoretically the government says no. because developers are EXPECTED to bring down the cost of a unit, as they get input tax credit on raw material such as steel, cement and sand. The developer is expected to pass on this low rate and the ensuing benefit of low cost of procurement to the buyer by reducing the unit cost.
Unlikely!! The calculation does not take into account land (outside GST ambit for now), which can have a bearing on the overall expenditure“. So, if the cost of land is 10% of the overall project cost, there is a probability of the cost not rising too much or even coming down a bit. Where the cost of land is higher, for example 60-70% of the project cost, apartment prices will rise.
If a project is 80% complete, any major benefit is unlikely. On completed projects, buyers might not get any benefit of cost reduction but will have to pay 12% GST if the property is not registered before July 1. If a consumer has registered a property, the old tax rates will apply . For those registering after July 1, the 12% GST will be applicable. For benefits of the low rates to be passed on, the consumers might have to wait for at least 3 months. But as GST is not being implemented in isolation but along with RERA, the chances are bleak for the developers to pass on the benefit as the operational cost under RERA is going to be much higher making it practically difficult for the builder. Moreover, the past 3 years have already forced the developers to bring down their margins and the market has bottomed out. The developer in the current situation will try to cover up the loses to survive.
New projects and future launches will see lower input costs and will allow developers to quote lower prices. But a12% GST will be applicable on this quoted price. The impact depends on the ratio of construction costs to selling price“.
There is no impact of GST.
The implementation of RERA- GST though will act like regulators for Real Estate but going by the current pulse the prices should go up by 8-10% if supply remains muted. This is because developers are cautious because of the Real Estate Regulation Act (RERA) and no project launch can happen without all approvals in place. This will mean that the developer cannot collect any money from the market in the name of Soft Launch thereby increasing the holding cost.