There’s a lot of conjecture about how Goods and Services Tax (GST) will impact residential real estate. The rate of GST for under-construction and new projects has been fixed at 12%. Read on to know how GST will impact housing prices.
Prices not likely to go up
Though the present service tax is 4.5% and post-GST it will be 12%, there are little chances of prices going up. Why?
Currently, taxes paid by the builders are:
► On raw material and excise: 12.5%
► VAT on construction material: 12.5-14.5%
► Entry tax levy in different states
► Service tax on construction: 4.5%
► VAT under composition scheme: 1-2%
These taxes have a cascading effect, and consequently, the accumulated tax liability falls on the customer, resulting in a higher cost when he buys a home. So, 12% GST rate will replace nearly half-a-dozen existing taxes.
Besides the lower tax incidence on the buyer, the builder will also get input tax credit for material he uses in construction. The builder is bound to pass on the reduced tax liability benefit to customers since there is an anti-profiteering law too.
As the input tax credit will allow the builder to claim refund for the tax that has already been paid, and 12% rate will subsume multiple taxes, housing prices could even come down.
Under-construction versus completed projects
It would be difficult to say that under-construction projects will cost more to home buyers. The impact may vary with the degree of completion of projects and the kind of raw material used after GST kicks in.
MS Mani, Senior Director, Deloitte Haskins & Sells LLP, says, “Buyers of under-construction projects will be taxed at 12% on that portion of work that is completed after July 1. But the home buyers should also be aware that the levy of GST at 12% by builders would enable builders to avail input tax credits on their purchases of goods and services which are used after July 1.”
“Builders asking for early payments to avoid GST is strictly illegal as the payment terms in most projects would be based on slab completion, etc. and seeking payment before completion of the taxable event/milestone is incorrect, as the objective seems to be avoid GST,” Mani added.
On payment for projects that have already been completed, Ashwinder Raj Singh, CEO, ANAROCK Property Consultants, says, “We recommend home buyers to take buying decision based on their requirements. If they get a good deal before July 1, they should go ahead and take the decision.”
Maintenance charges of housing societies
If you stay in a housing society where your monthly maintenance charges are more than Rs 5,000, you may have to cough up more after GST. “The maintenance charges would come under GST if the residential welfare association or a co-operative housing society collects more than Rs 20 lakh per year and more than Rs 5,000 per apartment per month. At present, service tax is levied on the same at 15% and GST would be levied at 18%,” says Mani.
Currently, rent on residential dwelling for use as residence is exempted from service tax and will continue to be exempted under GST too. There is no GST on residential renting arrangements, hence the impact will be nil.