Effect of GST on Real Estate

One of the key expectations under the new central government and upcoming Union Budget is the elimination of several unnecessary taxes by the implementation of the Goods and Services Tax (GST). With the union budget fast approaching, the expectations are higher for its implementation. What does implementation of the GST mean to the country’s realty sector?

Goods and Services Tax (GST)

Currently in India, taxes are applied at various levels for goods manufacturing, starting at manufacturing and transportation up to sales, service and consumption. There are certain taxes levied by the central government that are applicable all over the country. Apart from that, individual state governments too levy certain taxes. Another problem is that the tax paid under one act currently such as service tax cannot be treated as an input tax against other taxes such as VAT under another act. This has a cascading effect on the overall price of goods and services in the country. As a result, they become dearer to the consumer. Not only does it increase the end price of the product or service, but it also often creates legal hassles pertaining to taxes.

GST is a value added tax (VAT) that is intended to integrate several indirect taxes. Some of these taxes include VAT, excise, custom, central sales tax, luxury and entertainment tax. With the implementation of GST, tax rates will be unified across the country. The GST is also expected to bring down the overall cost of the products and services, thus reducing the burden on the end customer.

Effect on real estate

There is a two-way effect on the real estate industry with the implementation of the GST. The first one is that there will be an overall reduction in property prices. One of the major costs involved in the construction business is the cost of materials and transportation. The costs of materials and labour directly reflect in a residential project such as apartment or villa. There are also other taxes that increase the burden on a buyer such as VAT and stamp duty. With the introduction of GST, the costs of materials and transportation are expected to come down. This will bring down the prices of housing projects, making them more affordable.

The second thing is that the implementation of GST will improve inflow of international funds in the housing sector. The housing sector in the country is currently cash-strapped as foreign investors are on the back-foot. One reason for this is the various tax elements involved. Implementation of GST will improve investor sentiments, thereby improving investments in the housing sector.

This means that the housing sector may witness a good revival if the GST is implemented at the centre.