GST (Goods and Services Tax) is designed to coalesce a hierarchy of centralized taxes into one universal tax system owing to discrepancies in net tax calculation in India. Several market commodities saw a revision in tax rates and real estate market has not been untouched.
It’s been a year since GST was incepted and we have clear results facing us by now. The overall reaction of the market has been ambiguous but most homebuyers have favored it. GST became both a boon and a bane for Realty industry due to variable tax implications.
We will summarize all of these aspects in this article to present a clear view of the situation in India.
Tax Reduction Vs. ITC Calculation
With the revisions in tax structures brought by GST, the affordable housing segment a primary reduction in taxes. The tax on buying a 60 sq meter home came down from 12% to 4% after the implementation of GST. This is a respite for affordable home buyers in the country.
But, with it also came to a complex mechanism for Input Tax Credit calculation. Under GST, builders are given a rebate on the inputs they invest in their projects which is called ITC. This credit, on the whole, helps in reduction of the net price of the home.
But with veiled clarity on how much rebate is available to the builders, the net benefit for home buyers is unsure. It is being normed that the overall price has sought an increase, rather than a decrease.
Completed Vs. Under Construction Properties
If you’re heading out to buy an apartment from a project that is completed and ready for possession. You will find yourself in a much better condition than a buyer who is aiming for an under construction property.
Completed projects are exempt from attracting any kind of tax from homebuyers. On the flip side, under construction projects attract a 12% tax with ITC. This again shoves buyers into dilemma on the final price and net benefit.
The confusion is making home buyers prefer completed projects over under construction ones. This disturbs the balance in the real estate market, creating an inflation for ready properties.
Even after a year, the adoption rate has been slow. There are still some major policy challenges that real estate developers and dealers face due to GST. These have been listed below.
GST is a fair practice with the right intentions of reducing tax burdens on the real estate industry but it will take time to align needs with solutions. The reforms offered under the system have been scanty and we’re waiting for evident widespread effects that can be counted in favor of the credibility of GST.