Decoding GST Facts in Real Estate

Real Estate (Regulation and Development) Act, 2016, will have a long-lasting impact on the real estate sector that will help in ensuring that real estate projects are completed on time. GST is not fundamentally designed for the real estate sector even though this sector stands to gain reasonably. The introduction of GST believed to benefit developers from the small towns and cities, those from low-income housing even if 70% of the market bent towards middle to the high-income segment of the housing. The law has been skewed against developers – largely due to the negative perception that is generated in the market because of poor performance, non-delivery of real estate products on time and so on but there are certain provisions that may still prove difficult to implement. The Real Estate (Regulation & Development) Act, 2016 is a step in the right direction – though it still leaves several gaps addressed before the law can perform as a framework for accountability through which both purchasers and developers can expect fairness.

GST definitely is reducing developers’ construction costs by negating the morass of double or triple taxation to a more moderate level through input tax credit. While there are no significant variations in the overall taxes, GST has certainly eliminated the tax-on-tax system. One of the key policymakers from the ministry had said, “Every attempt has been made in the real estate act to balance the requirements of all the key stakeholders namely consumers, developers as well as real estate agents. Much more professionalism is expected to go further as we start progressing on this implementation of this act and ultimately. There will be a situation where the projects are delivered as contemplated as per the timelines. We expect that the implementation of the act will start at the field level at the earliest and the benefits will start accruing to the sector, consumers, developers, everyone.”

While the tax-on-tax has been eliminated with the advent of GST, the overall outgo from homebuyers’ pockets seems to have increased, considering that even after passing on of ITC, they may have to pay 3-4% more than in the earlier service tax + VAT regime. However, shady transactions are definitely reducing to a considerable extent and the cause of bringing more transparency and accountability into the sector is served. Additionally, the input tax credit is a boon to developers as it aids in bringing down the construction cost.

The Road Ahead

Finance minister Arun Jaitley, while delivering a lecture at Harvard University on October 12, 2017, had said that the real estate sector should ideally be brought under the ambit of the Goods and Services Tax (GST). “The one sector in India, where the maximum amount of tax evasion and cash generation takes place and which is still outside the GST, is real estate. Some of the states have been pressing for it. I personally believe that there is a strong case to bring real estate into the GST,” Jaitley said. The finance minister said the move would benefit consumers, as they will only have to pay one final tax overall product. “As a result, the final tax paid on the whole product under the GST would almost be negligible,” he said.

In line with its ‘One Nation, One Market, One Tax’ philosophy, the GST reform will in all probability benefit the Indian economy in the long run. As the realty sector becomes more streamlined on the back of GST and other landmark reforms such as RERA, investor and consumer sentiments will become more positive and further strengthen the entire system in the future. In addition, as states have different state-level taxes, the implication of GST may not be uniform, across all states.

Implementation of the GST law will have a positive impact on the real estate sector with the expected reduction in its tax burden, according to property developers and consultants. “The enactment of this law will single-handedly solve many of the challenges faced by the real estate sector and help in pulling the sluggish sector out of its long slumber. This bill that is long awaited by the industry as a major tax reform for the economy will transform India into a single market creating a positive impact on the real estate sector, which has linkages with over 250 ancillary industries.

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