The Impact Of Goods And Services Tax On Residential Projects In Lucknow

By Author: Rajeev Kapoor
Total Articles: 2
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On 29th March, 2017, the Goods and Services Tax (GST) was passed in Lok Sabha with four additional legislations - Union Territory GST Bill, 2017; GST (Compensation to States) Bill, 2017; Integrated GST Bill, 2017 and Central GST Bill, 2017. With all the brouhaha before the passing of the bill, union finance minister Mr. Arun Jaitley said GST would propel in a steady indirect tax regime in India and will make commodities somewhat cheaper. It will subsume VAT, service tax, central excise tax and other local taxes to create a uniform tax market. The GST is expected to check tax evasion and boost GDP by about two percent. At the same time, states need to pass their SGST Law or State GST, which would allow them to impose sales tax after levies such as VAT are subsumed.

GST’s Impact on Lucknow Real Estate

The overall construction of residential projects in Lucknow, civil structures or complex buildings, meant for sale, partly or wholly, will be subjected to 12 percent tax with complete input tax credit, subjected to no refund if there is an overflow of input tax credit. In simple words, residential real estate projects ...
... in Lucknow will invite 12 percent GST, which would apply to builders selling housing units before the completion of the project to customers. However, stamp duty will remain applicable, regardless of whether the housing projects in Lucknow are under-construction or have been fully constructed, in the post-GST and pre-GST regime.

Will GST Help Customers in Lucknow?

With the GST, the total tax will increase from 5.5% to 12%. However, real estate companies will be able to take advantage of input credit on the services and goods purchased and spent in the overall construction of the residential property in Lucknow City. President of CREDAI, Shrikant Paranjape, has said that GST’s impact on property prices would be difficult to estimate at this level due to non-clarity on abatement for land value. He further added that in a project where the main raw materials are not covered under GST and completed apartment/flat is also not covered, then the tax input benefit would be difficult to justify or calculate. Only time and market forces will decide how much benefit would be passed by builders to the buyers.

It must be kept in mind that the prices of raw materials tend to be volatile. Steel, cement and brick prices can increase anytime. Moreover, sand supply is always short and not easily available during the monsoon season. Therefore, these industries might not be able to pass the full benefits of tax credit to the consumers.

On the other hand, one has to consider the stage of construction of the property as well. For instance, if the overall construction of flats in Lucknow in a housing project is already at an advanced phase, where significant costs have been incurred prior to the implementation of GST, then less input credit would be available and fewer benefits would be passed to the customers. Nevertheless, if the construction of flats at Lucknow is at an early level, more benefits are expected to reach the consumers.