GST structure: Home buyers fear higher property prices

With the government finalising the tax structure for the goods and services tax (GST), home buyers now seem concerned that the GST may increase the price of under-construction flats, which are expected to come under its ambit.

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“Already the service tax is unreasonable on home buyers. Now, the new GST tax slabs indicate that the tax would be no less than 18%. I fail to understand why home buyers are burdened so much,” complains Rajiv Dhall, a home buyer in Noida.

Another home buyer from Mumbai, Sweta Rai, feels that the new taxation structure will make homes costlier.

“I don’t think there will be any extra burden on the developers. Even if they have to pay higher taxes, they will pass it on to the home buyers. They will get the input credit, while getting rid of multiple taxation. However, in the process, houses will become costlier,” says Rai.

How GST may affect under-construction properties:

The tax simplification under the GST, which is intended to replace multiplication of taxes, does not mean that home buyers will benefit.
Builders are likely to pay a higher amount in the four-tier taxation but will get input credits.
Builders are expected to pass on the burden of higher taxes to home buyers.
Instead of VAT and service tax, the home buyers may end up paying GST that is much higher than the two taxes together.

Developers maintain that price competitiveness is crucial, in the current real estate market scenario. The real estate sector already has to deal with multiple taxes, such as service tax, VAT, excise duty, etc. GST will apply to the materials that a developer procures, for building a residential project. Hence, it will have a direct impact on the overall cost of construction.

As India has just introduced the GST, there is still no clarity on how it will affect the developers’ contracts with vendors, suppliers, etc. Moreover, the impact of offset of GST credit on construction of buildings and GST paid on rents or leases, will have to be considered.

Will GST benefit or burden home buyers?

Nikhil Hawelia, managing director of the Hawelia Group, cautions that a high rate of GST, will defeat the very purpose of tax reforms and uniform taxation. According to him, while GST simplifies multiple taxation, the real benefit will be from a lower tax burden. That, however, has not been achieved.

“For the developers, the total quantum of tax will increase and it will naturally be passed on to the home buyers, as per the business process. Moreover, it is still not clear whether the land purchase, would be measured as a major source of input cost. In this new tax structure, the real burden will be on the home buyers, who will end up paying more in terms of taxation,” says Hawelia.

While the GST has been touted as the biggest tax reform in the country, home buyers remain concerned that it may increase the price of under-construction flats, with its proposes four-tier taxation structure.

GST’s impact on buyers and builders

Developers welcome GST but home buyers remain confused.
Builders are likely to get a reprieve from multiple taxation and they may be able to avail of input credits.
The tax burden on home buyers may increase, with four-tier GST taxation structure.

(The writer is CEO, Track2Realty)

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Ravi Sinha

Ravi Sinha is a journalist with nearly two decades of cross-discipline media exposure. He is the CEO of real estate think-tank group Track2Realty. He has been writing extensively on the real estate sector for nearly a decade. Evaluation of real estate brand performance is his expertise and he has immense insight into consumers’ psychograph in the property market.

Twitter: https://twitter.com/ravitrack2media