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Impact Of GST On Real Estate

India is poised at a critical  threshold of embracing the Goods and Services Tax (GST) Act, a unified tax platform which is slated to roll out on 1st of July 2017. The speculated impact of this move has already started creating noticeable ripples in the real estate segment and major players have started predicting a significant reduction in property prices across the board.

But what's in it for you as the end user, let's find out in this article.

Transparency is expected to be one of the biggest impacts of GST coupled with the Real Estate Regulatory Act (RERA) that has come into effect on May 1, 2017. The very face of Reak Estate as we know it today will undergo a sea change, for the better as are all made to believe. Realty industry regulator National Real Estate Development Council (NAREDCO), however, believes that the change in the tax rates on account of GST will be minimal. NAREDCO Chairman Rajeev Talwar told reporters, that his organization is of the view that the actual tax incidence under GST would match or be lower than the existing multiple indirect taxes in the sector.

The sector is currently witnessing a widespread confusion over the impact of GST. Here's what some realty biggies had to say on the entire matter, now this is food for thought especially if you're on the verge of buying your own nest. Let's get the cobwebs out, take a look :

 

  • Home-buyers All Set To Benefit

  • Siddha Group Managing Director Sanjay Jain believes that GST in the realty sector is expected to reduce property prices and ward off ambiguity in the buying process. The Act is also expected to curb indirect taxes like Excise Duty, Value Added Tax & Service Tax, which buyers pay indirectly to the developers thereby reducing the price of the commodity significantly

 

  • More Transparency In The Process

  • Dhiraj Jain, Director, Mahagun Group is of the opinion that realty players will be hugely benefitted as all the lost Cenvat credit, which is in current regime a cost to commercial developer can be curbed and availed if GST is applied in a free flow manner, however that also is predominantly based on how GST is actually applied in the real sense of the word. There's also a strong prediction that there would be a nationwide realty sector growth by almost 15-20 percent higher than projected in the course of next 5-7 years if GST is followed to the "T".

 

  • Reduction In Housing Project Costs

  • Kushagr Ansal, Director, Ansal Housing believes that since housing projects depend a lot on allied industries like steel, cement, IT and BFSI, a lowered GST rate of 18 per cent will offer a huge benefit because the overall construction cost will reduce. Hence, there would be a direct benefit with property registration as well because of tax cuts is the speculated thought process from his point of view.

 

  • Increase In Demand For Property

  • Avneesh Sood, Director, Eros Group, advocated that tax deductions and lower property prices would hike the demand in ripple effect. He believes that a single tax structure will soon be on the run which will bring down the costs of under-construction units. Developers and buyers hence will make the most of this as reduced costs will positively increase the demand for property and this also happens to work in the interests of all parties involved.

 

  • Input Tax Credits To Reduce Cost Of Raw Material Procurement

  • On the government fixing the GST rate at 12 per cent on under-construction buildings, Chintan Sheth, Director, Sheth Corp mentions that unlike the current practice, legal contracts in the construction business will be considered as services and the GST rate for the same will be effectively lowered as input tax credit (ITC) will also be available. He also advocates that the ITC facility will, in turn, slice the cost of raw material procurement. GST will help cut cash component in construction as products have to be sourced from registered vendors to get input tax credits thereby reducing the flow of black money.

- Extract from The Raw Real Estate Project for a "Delhi" based client.

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