Actual Impact of GST in Real Estate

impact of gst in real estate

Impact of GST in real estate

Check out our other stories on Trending Thoughts. Impact of GST in Real Estate. Goods and services tax also known as GST has finally been introduced after a long wait. GST is an attempt to rediscover India as one market, one nation, and one tax principle. India’s real estate is one of the biggest markets and it won’t be left out from transformation.

The most vital sector of the Indian economy is real estate. After agriculture, it is the biggest employer in India’s economy. It is devoting 5-6 % to the GDP on an average “compounded annual growth rate (CAGR) is a scale on which the contribution is set to grow of 30% in the upcoming 10 years. In the coming years, the real estate revenues worth will be astonishing $180 billion.

Previously, there were so many disputes entangled in real estate due to ambiguity in providing and multiple tax systems. Our government introduced the GST system, compiled all the taxes to achieve a positive impact on the real estate industry.

Image source: pksbuildmart.com

Impact on real estate buyers & investors

Previously, depending on the status of property construction, the buyers were accountable to pay taxes even if the property was complete or under construction. When the buyer used to purchase the property which is under construction, the buyer was liable to make the payment for registration charges, VAT, stamp duty and service tax.

The biggest profit of GST is, it is very easy to understand which is applied to the overall purchase value. The rule of GST is all the under construction property which is being purchased will be charged 12 percent of the property price. This tax system excludes registration charges and stamp duty. And, the property which is ready for possession will be purchased as earlier provisions however; buyers no need to pay indirect tax.

Impact on developers

Under the earlier law, developers used to pay central excise duty, VAT, customs duty, entry taxes, etc for the cost of material used in construction. Developers were also liable to pay 15% taxes for other services like architect fees, approval charges, labor, legal charges, etc. Finally, these charges were fetched to the buyer.

After the inauguration of GST, there are a lot of charges subsumed. However, the construction costs are not changed as much. For example, now the tax rate of cement will be 28 % under GST. This tax rate is higher than the previous tax rate of cement; it was about 23-24%. But the tax rate of the iron rod which is used in construction is less than the previous tax rate. Previously it was 19.5 percent and now it is 18 percent.

Moreover, the cost of substance lowered, will outcome in the reduction of the expenses. The credit of input tax will help to increase the profit margin. All these practices of GST are to get the project cost efficient for the developers and also to make sure that the cost will be beneficial to the buyer because of the price reduction.

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