Several Setbacks Could Stunt Demand
Largely unstructured and thriving in pockets, the real estate sector is undergoing a double whammy — grappling with the implications of recently imposed Real Estate Regulations Act (RERA) and now the GST.
Let us leave aside the impact of RERA for the time being, here are some of the likely scenario emerging for the housing sector under the GST regime. One: Properties where construction is nearly complete will get expensive post 1 July. Why? Because developers won’t get any tax credit of goods that were deployed in the construction. This may have a negative impact on the already sluggish sales of housing units.
Two: New launches of certain minimum size — say those projects adhereing to the respective state-defined affordable housing projects may be neutral or slightly cheaper. But this is minus any impact of RERA. Three: Those housing units that qualify under projects like Housing for All and the Pradhan Mantri Awaas Yojna could remain unaffected.
That is broadly the takeaway if you are an interested consumer. For developers, there is going to be some additional burden of filing requirements.
“Developers are already filing VAT return in each state and service tax often centrally (one return for all India projects). With GST, filing would be state specific but number of filing would marginally increase (they are already filing one VAT monthly return, VAT TDS return – monthly/ quarterly per state, plus, two half-yearly return all India — now it will be 37 returns per state,” explains Priyajit Ghosh, Partner, Indirect Tax, KPMG.
Why will a new housing unit get expensive post 1 July? As explained, developers will not get tax credit of goods used for construction as these goods such as cement, steel, bricks, etc. will not qualify as held in stock as those are already used in construction or, in other words, have lost their form after incorporation in the immovable structure, says Ghosh. The transition provisions allowing credit of unsold stock to traders and manufacturers are not helping those projects, as the tax was paid long ago and there is no specific provision allowing credit of goods already used in construction.
The new or existing buyers would be forced to pay the new GST rate of 12 per cent (as there won’t be any input tax credit benefit to the developers, they would be unable to lower the existing prices for such projects), where substantial construction activity is already over. “This is expected to slow the inventory take off as compared to new projects,” adds Ghosh.
Under the new regime, all the other indirect taxes will be subsumed and a buyer will have to pay a uniform 12 per cent tax on the purchase of real estate, except stamp duty. This is true for the approximate 55 lakh under-construction properties but not on completed, ready-to-move-in apartments. On the other hand, entire input credit — excise duty and central sales tax on construction materials paid by developers — will also be allowed unlike earlier.
The government has already asked developers to pass on any benefits that they may avail under the new tax regime to the homebuyers. “The builders are expected to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/instalments ...in the flats under construction, they should not ask customers to pay a higher tax rate on instalments to be received after imposition of GST,” an official statement said.
