how gst will affect real estate

How GST bill will affect to buyers and builders?

GST (GOODS AND SERVICE TAX) is going to be the massive boon for all Indians, especially for builders and buyers. GST (GOODS AND SERVICE TAX) bill was passed by both government houses, Rajya Sabha and Lok Sabha will soon be imposed from 2017 onwards. The bill proposed and passed by the houses will unify the tax structure all over the country thus, waiving off the financial pressure on distribution and production of goods and services.

In the current scenario, we are liable for paying taxes levied by the central and state government; this includes taxes like Service Tax, Central Tax, Income Tax, Excise Duty, Vat, Sales Tax, Property Tax and so on. All these taxes will get eliminated by implementation of GST (GOODS AND SERVICE TAX). The tax is always on a higher note for real estate buyers and builders because, apart from selling and buying of the property many other aspects gets involved such as land value, material & manufacturing cost and many more. All these costs get added before the purchasing or selling.

Effect of GST (Goods And Service Tax) on buyers and builders:

1.    Stamp duty :
The state government charges the stamp duty for registering sales agreement for the plot although this tax varies from state to state. Now if you buy a furnished property (ready to occupy) from the builder, by law enforcement he is already issued with a completion certificate from the concerned department. Therefore, you do not have to pay the Value Added Tax (VAT) or Service Tax, in short, you are saving your property cost by 4% to 9%, then again this solely depends on the state where your will buy the property. GST will eliminate the procedure.

2.    S.T. (Service tax) :
From July 2010, if you are buying an under construction property, you are charged with service tax by builders and this service tax get deposited with the central government. The reason behind the scene was the disputed purchase contract of work in between the buyer and builder which includes the value of land too. Therefore the regulations regarding the tax on work contract were not imposed in residential property construction. The government in 2010 Finance act, has simplified the situation by the ¾ cost of the unit as S.T. (service tax) which is ¼ of 15%. Of the recent the taxation on under construction property act was probed but Delhi High Court ruled against it and it is at hold at sub-judiciary in Supreme Court of India. Since service tax is imposed by central government every state follows the thumb rule but it is different when it comes to VAT (value added tax).

3.    VAT (value added tax) :
VAT (value added tax) is imposed by states government and the amount gets deposited in their account. Every state has their own set of laws applicable to different matters, in property matter the VAT ((value added tax) is eliminated from few states whereas imposed by many. For states like Maharashtra, Haryana, Karnataka etc they pay an additional VAT (value added tax) while buying any under construction building, whereas states like UP (Uttar Pradesh) doesn’t impose any VAT(value added tax) for the buyer. VAT is the most debated tax issue as this is imposed by the state government and not central so everybody doesn’t fall under the same norms. The state government of Maharashtra charges 1% VAT (value added tax) of total value agreement whereas Karnataka imposes 5% VAT (value added tax) on the agreement, with the implementation of GST every state will have the same tax structure.

Benefits of GST:

  • Cost reduction
  • Less paperwork’s
  • Low manufacturing cost
  • Extra tax revenues
  • Higher GDP rate
  • Growth in export

How will buyers and builder save money with GST (Goods And Service Tax) implementation?

In real estate, the constructions of buildings or infrastructure incur a lot of taxes levied by the central government as well as state government, on many incidents it is seen that the builder ends up paying double or triple taxes for the same purpose. When GST (Goods And Service Tax) will be imposed, it will unify the taxation scale and eliminate dual tax payment, this will help the builder to reduce their on-site cost and save operational cost. The builder would enjoy a high marginal benefit along with improvement in liquidity and credit.

Under GST (Goods And Service Tax), the buyers previously implemented tax like VAT (Value Added Tax) and S.T. (Service Tax) will get waived off. Apart from this many building bare the luxury tax because of the amenities like a gymnasium or swimming pool or tennis court, all this can be eliminated with GST (Goods And Service Tax) implementation. Moreover, with the unified taxation, everybody will pay the same tax irrespective of their state. Here, the buyers get a transparent tax trail.