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GST Impact on Real Estate

Affordable Housing Prices To Come Down By 3-4% Under GST



Affordable House

The recent implementation of Goods and Service Tax (GST) is expected to cut down the prices of affordable housing however it depends on developers if they do not increase property rates in order to accumulate enough funds to repay investment returns during this period. After the implementation of GST, developers will now have to cut on cash component and source their inputs from registered vendor to avail any tax rebates.

There might be some initial price disruption while procuring raw material from the registered vendor. The buyer of an under-construction property will have to pay 12% GST in addition to stamp duty and registration charges. According to Ashok Mohanani, Vice President, National Real Estate Development Council’s (NAREDCO) – affordable housing section can see a price drop of around 3-4%.

Mohanani further added – Affordable housing will have the benefit of procuring input tax credit. Earlier, developers used to pay excise for fittings of cement and steel which would involve in the property cost, they didn’t receive any input credit but after GST they will be able to procure credit which will allow them to cut down the prices, benefitting the buyers as well.

GST will curb down various indirect taxes such as excise duty, VAT, service tax etc. which were indirectly paid by the buyers to the developers. However, this impact may not be visible in the luxury or premium housing segment, which will more or less remain the same. The sale of under-construction real estate properties will be categorised as supply of services and will be subject to GST payment while the sale of complemented real estate properties and lands are exempted. Also, the service tax and VAT charges paid on the sale of under-construction properties will come under GST.

As per ICRA report, GST rate will be 12 % for buildings constructed for sale which includes land value in the sale value. If the land and construction value happens to be separate agreement, the expected GST rate will be 18% on the construction agreement value. Input Tax Credit (ITS) for different construction goods and services utilised in the construction will be fully available however if the ITC exceeds the output GST liability, it will not be refunded.

The impact of GST may vary from state to state due to different tax structures followed in different states. Similarly, savings in the project cost may also vary accordingly, depending on the cost of each project.

Also Read: Why The Monsoons Are The Best Time To Invest In Property

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