The real estate market is one of the major sectors that brings a significant change to the gross domestic product of the country. It is basically a property consisting of the lands and buildings including the immovable property of nature such as crops, minerals or water. In other words, all the capital requirements of the nation are best fed by the real estate sector.
The goods and service tax has been anticipated by the citizens of India for the last one year. Since the announcement of GST was made by the government of India, everyone was in a dilemma of what the newly formed tax system would have in store for them. The reformation in the tax system has brought considerable changes to the different sectors of the Indian economy, like real estate. People predict it will strengthen the economy in the coming years. For those who are new to this term, the goods and service tax system better known as the GST is a type of Indirect tax system that was initiated long back but was eventually introduced in India on July 1, 2017.
The main aim of the tax was to replace all previously existing multiple cascading tax that was being levied by the state and central governments of the country. With changes and impacts in every sector, the real estate market is an important sector of the society that has also faced a transformation by this revolutionary taxation system. Though it was predicted that the changes are for good, the impact and implications will, however, be witnessed only in the coming 2-3 years of time. The fact that a change worries people is true and so can be seen in the implementation of goods and service tax but in the long run, GST is all set to increase the tax collections and make it easier for all retailers and business person to comply with it and moderate the overall taxation levels.
Though there was a lot of guesstimate on what the GST rates will be for the real estate, now that the rates are announced clearly people have come to settle with them and satiating with the impacts of goods and service tax on real estate. So are you concerned how goods and service tax will impact your real estate buying experience? Or is it increasing or decreasing the prices of the residential estate that you want to buy? Are you concerned about the prices of input and raw materials costs as a real estate developer? Or how will your entire real estate buying or shopping experience change?
It is normal if you are in qualms about these questions surrounding the goods and service sales tax and the real estate market. But there is nothing to be worried about as you are at the right place. In this post, we tell you about the impact that the goods and service sales tax will have on the real estate sector. Here is what you need to know-
The impact of Goods and service tax on residential real estate
The most important deciding factor for the goods and service tax for real estate have been the abatement rules that were applicable under the service tax regime along with input tax credit facility for developers. Market research analysts suggest that the sales of the residential property sector under the goods and service tax are not just impacted on rates but also on account of sentiment and the trust deficit.
An important law that comes into play to determine the new rates is the Real Estate regulation act or better known as the RERA. RERA actually looks into the trust deficits of the residential real estate.With this new taxation system, the developers were constantly worried that the final ticket size of homes will go up. But what was observed was quite converse of it.
The goods and service sales tax settled the real estate sector by segmenting it to the 12 percent taxation category, ultimately cutting down many unwanted previously prevailing costs. With the implementation of these major tax changes and cutting down the costs that previously existed, the main aim of the real estate developers remains at staying customer centric and delivery focused in order to create a differentiated identity for them in the market.
The impact of Goods and service tax on rental housing
Another major sector of real estate to get impacted by the goods and service sales tax is the rental housing scheme. It was obvious that if the government were to tax residential housing schemes under GST then an impact would be seen for the same. But no major slump is observed in this particular sector of real estate because rental housing is one of the sticky demands of the user and particularly end-user driven. In our country, the rental yields in housing are a simpleton and around 2 to 4 percent on an average. So, with the implementation of the goods and service tax, the rents are either steady or declined marginally due to increase in the housing stock.
Other major impacts: Major impact in real estate due to GST has also been observed in the affordable housing sector and the commercial real estate. The affordable housing scheme is currently exempted from the goods and service sales tax, while the commercial real estate market with the existing service tax is observed as of 18 percent for GST.
Thus, overall GST is expected to boost the economy by bringing a transparency between the buyer’s and the investor’s interest. The earlier tax system was very much complicated for the buyers as they had to pay VAT, service tax, stamp duty, registration charges etc.
They were also liable to pay taxes based on the construction status of the property and also the location of the state. With GST, all under construction properties are charged under 12 percent tax rate, thus abolishing all indirect taxes. Furthermore, even the developers are facing relief by the reduced cost of logistics and increased profit margins.