GST rollout may make new homes cheaper

Number of hidden and cascading taxes to be removed under new rules, experts warn against offers being made by builders

VALUE ADDED TAX AND SALES TAX ARE NOT REFLECTED ON THE INVOICE IN MOST STATES WHEN A CONSUMER BUYS A HOUSE, BUT ARE ADDED TO THE COST

Is it a good time to buy a house? This is the perennial question on the minds of homebuyers. But this question assumes significance as India moves to a new indirect tax regime, the Goods and Services Tax (GST) from July 1.

Experts say that buyers will benefit if they buy houses in projects launched post July 1. Though a 4.5% service tax is being replaced by a 12% GST, the advantage is that a number of hidden and cascading taxes will be removed under the new regime. Developers will also get several tax credits under GST, which experts believe will make projects launched post July 1 comparatively cheaper.

Value Added Tax and sales tax are not reflected on the invoice in most states when a consumer buys a house, but are added to the cost.

“The heavily taxed real estate sector welcomes a single stable 12% GST rate, inclusive of the value of land and with full input tax credits,” said Rajeev Talwar, CEO, DLF and chairman of National Real Estate Development Council (NAREDCO).

But these tax credits will not be applicable to projects that are under-construction, nearing completion or ones that are ready.

To allay fears over whether developers will pass on the tax credit benefits to consumers, the government has proposed antiprofiteering measures.

Many developers are offering pre-GST discounts but experts warn against them as they are allegedly ways for builders to collect money and clear dues. Reducing inventory through deep discounts is also a motivation for developers.

Builders in Noida and Greater Noida are advising existing buyers to clear their remaining property dues before July 1 to avoid a 12% GST and pay 4.6% service tax, instead.

Experts warn against such claims.

“The government has introduced anti-profiteering clauses to ensure the input tax credits that builders claim will be passed on to buyers of houses who get possession after July 1. The expectation is that the builders will extend a discount on the amount due from buyers to protect them against a 12% GST,” said Amit Bhagat, partner, indirect taxes, PwC India.

But experts and developers are divided on the impact that GST will have on the real estate sector.

“Confusion persists over the impact of GST on different segments of housing such as luxury and affordable. But we are working closely with the government and are hopeful that initial hiccups are dealt with once GST is implemented,” said Manoj Gaur, MD, Gaursons and vice-president of CREDAI (National). The 5-8% stamp duty charged during registration of a house will continue to be levied under GST, but developers want clarity on it.

While developers are cheering the unified tax regime that will replace the plethora of state and central levies on realty, many said that due to multiple layers of GST on land and raw materials, project costs could escalate.