Simplifying GST for the home buyer

So you’re wondering if the time is right for you to buy a house. This question has assumed a new significance, as India moved to a new indirect tax regime, the Goods and Services Tax (GST) on July 1, 2017.

The real estate sector was previously subject to multiple taxes levied by the government. The central government imposed service tax on under constructed projects and the state governments charged VAT and composite tax on various materials used for construction, without sharing the benefit of input tax credit. Further, immovable properties were charged excise and stamp duty, at the time of registration of sale agreements, thus constituting almost 10% of the value of property sold.

With GST, all under-construction properties are charged a tax of 12%, excluding stamp duty and registration charges. The implementation of GST has been envisioned to increase transparency and organization in the sector and minimize scope for double taxation. Here’s a breakdown of how GST will impact the final price for a home buyer.

INVESTING IN A NEW PROJECT

Experts say that home buyers are likely to benefit when they invest in projects launched post July 1, 2017. Although the 4.5% service tax has been replaced with 12% GST, investors gain from the advantage of being relieved from various hidden and cascading taxes, under the new regime. Developers also get several tax credits under GST, which are believed to make projects launched post July 1 comparatively cheaper.

INVESTING IN A READY TO MOVE IN PROJECT

Reputed realtors in the market reckon that Ready to occupy Flats, which have received completion certificate, would be preferred by home buyers now, as they remain out of the GST ambit. There are no indirect taxes applicable in the sale of such properties. However, such properties could also be priced marginally more, as they do not receive the benefit of input tax credit. EMIs for ready-to-move-in apartments also do not attract indirect tax and there will be no change in the interest and principal amounts paid.

BRINGING CHEER TO AFORABLE HOUSING

The Center’s vision to provide housing for all by 2022 has been pushing the affordable housing segment with sops in the last three budgets. GST exemption on affordable housing projects has made them even cheaper, offering value to the lower and middle income groups.

LUXURY PROJECTS MAY FACE A SETBACK

The new interest rate with GST implementation may increase prices of premium units due to high land costs, especially in metro cities. Although the basic construction cost of premium properties might marginally reduce, the input tax credit limited to 12% will not be sufficient to bring down the fresh tax liability to nil, because of the taxes paid on other expenditures.

GST AND NRI INVESTMENTS

GST implementation stands to benefit the NRI community looking to invest in real estate within the country. The formation of a seamless all-inclusive channel without issues of multiple taxation and indirect taxes is sure to simplify the process. The bottom line is that there definitely is reason for home buyers to cheer, even if they have to pay slightly more in case the standard GST rate is high, as they can be assured of a simpler taxation structure.

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