Top 10 frequently asked questions about GST on real estate

With the Goods and Services Tax (GST) set for a nationwide rollout on July 1, 2017, property seekers continue to have numerous queries on this new indirect taxation regime. Housing News gets the experts to answer the top 10 most popular questions pertaining to the GST

1: Will property prices go up, with the GST being applicable on all construction-related materials and services?

A: While the government has attempted to keep the rates similar to the existing incidence of central excise duty plus VAT, we could see a marginal increase/decrease in tax rates. However, the availability of credits, surpass the marginal increase in tax rates. (Answered by Amit Kumar Sarkar, partner and head – indirect tax, BDO India)

 

2: Will the EMIs on home loan shoot up, due to the GST?

A: The GST is slated to be applicable on financial services, at the rate of 18 per cent. Hence, home loan processing charges are likely to increase under the GST regime. (Answered by Shubhika Bilkha, business head at REMI)

 

3: What would be the impact of the GST on property rentals?

A: Property rents will increase, for developers engaged in the construction of properties on their own account and subsequent renting of the premises, as the GST credit shall not be available in the hands of such developers. Hence, with an increase in tax rates on the input side, property rentals may spike. (Answered by S Satish, executive director, RSM Astute Consulting Group)

 

4: Will borrowers need to shell out tax on the entire home loan amount, even in cases where only part of the EMIs are due?

A: No, as the relevant tax would have been incorporated by the developer, at the time of receipt of the payment or issue of the demand letter for payment. (Answered by Amit Kumar Sarkar, partner and head – indirect tax, BDO India)

 

5: Is it true that under-construction properties will be costlier, compared to ready-to-move-in properties?

A: Yes, because GST at the rate of 12 per cent shall be levied on properties that are under construction, where the completion or first occupancy certificate has not been received. (Answered by S Satish, executive director, RSM Astute Consulting Group)

 

6: Will resale properties become costlier under the GST?

A: A resale property is an immovable property. Thus, it is not covered under the definition of ‘goods’ under the GST regime and hence, there will be no impact. (Answered by S Satish, executive director, RSM Astute Consulting Group)

 

7: Can a businessman get input credit for GST paid, while purchasing an office?

A: An office purchased by a businessman, will result into the purchase of an immovable property and this transaction is out of the purview of the GST and hence, GST shall not be levied. Therefore, the question of input credit doesn’t arise at all. (Answered by S Satish, executive director, RSM Astute Consulting Group)

See also: GST on real estate: How will it impact home buyers and the industry

 

8: Why would a developer pass on the GST benefits to home buyers, when they can increase their profit margin by retaining the benefits?

A: As per Section 171 (anti-profiteering clause) of the CGST Act, 2017 and as per the recent press release specifically for real estate sector, a developer is mandatorily required to pass on the benefit accrued from the implementation of the GST. Hence, keeping the margin same, a developer has to evaluate the revised pricing. However, given the fact that after obtaining the completion certificate or its equivalent, credit shall be restricted to the developer, it shall be interesting to see how the anti-profiteering sections are administered by the government. (Answered by Amit Kumar Sarkar, partner and head – indirect tax, BDO India)

 

9: Will the GST impact the stamp duty on buying a property? What about registration charges, maintenance charges, etc.?

A: Apartment owners will have to pay about 2.5 per cent additional tax on the maintenance charges. This tax will be applicable on flat owners, who pay maintenance charges of above Rs 5,000, excluding property tax, stamp duty, water charges and electricity charges. (Answered by Rohit Poddar, managing director, Poddar Housing and Development)

 

10: What will be the overall increase or decrease in property prices, once the GST is implemented?

A: Real estate builders will now receive the benefit of input credits, on materials such as steel, cement and sand, which will be deducted from their tax liabilities. It has been anticipated by the government that builders will transfer these benefits to the end consumer, by way of price reduction, to boost consumer demand in a tepid sales environment. (Answered by Shubhika Bilkha, business head at REMI)

The numerous queries related to GST on the real estate sector, are likely to be answered gradually over time, as people get more acquainted with the new tax law. Although the GST may cause a marginal rise in prices in certain segments of the property market in the short term, but in the long run, this tax regime is expected to be a game changer that will boost the growth of the real estate industry.

 

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