WELCOMING the GST rollout vis-a-vis real estate on Saturday, Shrikant Paranjape, president, Confederation of Real Estate Developers Association of India (CREDAI) Pune Metro, called it a major structural tax reform. “Steps like RERA and GST will increase transparency in the segment,” he said.
In a statement, CREDAI said it believed that real estate developers will pass on tax credit to the customer. “However, the extent of benefit that can be passed on the customer will depend on various parameters, such as the stage of project, land value embedded in price, total sales made, the cost of the house already paid by the customer to the developer,” CREDAI said.
Considering the nature of real estate functioning, each project may be different for GST calculations. Similarly, cost benefits due to GST to each customer may also differ, it said.
“Computation of input tax credit cannot be ascertained immediately due to complex nature of ascertaining ultimate input credit as it depends on various factors as stated above. Thus, the benefit to be passed on to the customer can be properly assessed only towards the completion of project,” it stated.
“In the current situation of transition, customers are required to be patient and cooperative. They all can be rest assured about the credibility and transparency in the process of passing on benefits since all project cost related details are mentioned on MahaRERA website,” stated Paranjape.
Holding forth on the factors that will play important role in making the GST related calculations, Paranjape said, “It is important to assess the quantum of corresponding benefit that will be passed on by suppliers, vendors and service providers of developers. It is expected that the benefit will be passed on to developers so that overall cost of developer does not go up. If the cost does not increase then the entire input credit benefit can be passed on by developers to buyers.”
CREDAI said it must also be borne in mind that a lot of vendors of the sectors like steel, cement, and sand have tendencies to cartel. “The cement and steel prices soar without warnings. Sand is always in short supply and not available in monsoon. It is likely that these industries may not pass on entire benefit of tax credit. Only time will test it.”
Another factor that will determine the passing of the benefit to purchaser is the price tag of the real estate. “The prices of real estate depend on land value. Land is a major raw material in any real estate… It is pertinent to note that there is no GST on land. Obviously, no input credit is available in respect of the major raw material. If no input credit is available for 80 per cent of the incurred cost, overall percentage of input credit of the tax collected will be negligible and virtually no benefit may be passed on to the purchaser…”, it said.
“One can summarise that the benefit that can be passed on will not be standardised. It can be ascertained only after afflux of time. It will differ from developer to developer and from project to project. In a product whose major raw material is not covered by the GST and whose post-construction product is also not covered by the GST, the tax input benefit is hard to calculate or justified. Only the market forces ready reckoner rates and afflux of time will decide whether and how much benefit will be passed on by developers to purchasers,” CREDAI added.