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How The Roll Out Of Gst Will Impact The Real Estate Sector?
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After a long wait of contemplation and discussions, the Indian parliament's budget session has decided to bring Goods and Services Tax (GST), which will come into effect on 1st July 2017. It is a consumption based tax, which is applicable on the sale, manufacture and consumption of goods & services. This will replace the taxes imposed by central and state government. The new tax is expected to influence GDP, adding 2% to the total value of goods and services. It must also be noted that if the economy does well, there will a major increase in the demand for the real estate sector.
It is a known fact that real estate is one of the most taxed industries when compared to all other industries. If we consider the cumulative home buyer and developer's construction tax unit, it comes to around 35% to 45% of the property's cost.
On the 31 March 2017, the government approved nine rules related to GST, paving the way for a smoother roll-out. It is anticipated that the new tax slab will cover the land leasing, renting of commercial and purchase of under-construction housing properties. Basically, it will have four tax slabs – 5%, 12%, 18% and 28%.
Prior to discussing the impact of GST on real estate, let's understand what home buyers are required to pay.
Even when you're buying a residential property, it involves several tax aspects. When it comes to buying a home, buyers are required to pay service tax and vat, which is applicable to all under construction property transactions. The former is collected by the Central government, while the latter tax is collected by the State government. Currently, the Service Tax rate in India is 15%.
Impact for commercial property developers:
The roll out of GST will work in favour of commercial property developers. Most of the times, commercial developers have no funds in hand for constructing a commercial project, which is later given on a rent basis. The new tax regime will ensure a smoother flow of credit, thereby leading to an increase in margin.
Developers will have to focus only on single consolidated tax component which is GST, rather multiple options like customs duty, excise duty, entry tax & others.
A unified tax regime will prevent the practice of double taxation, which leads to heavy increase in price rise. GST will also lessen the problem of unorganized players in the Indian market, ensuring transparency in the sector.
Goods and services tax will eliminate the gaps existing in the supply chain management.
For the implementation of GST, both buyers and developers have pinned a lot of hope as it will bring transparency. However, at present, the impact of the new tax regime cannot be assessed and it can only be understood when the rate if fixed for the real estate sector. It will surely bring some relief to the sector.
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