In a landmark move, the Indian government rolled out the much anticipated Government Service Tax (GST) a couple of days ago. Touted as one of the biggest alterations to the Indian constitution, the GST is expected to streamline and iron out the entire taxation system in India making it easier and more transparent.
GST will replace many of the direct and indirect taxes like VAT, CST, entertainment tax, and luxury tax currently being levied by both Central and State governments, thus unifying the system for simpler pricing methods. The new law, in effect from 1st July 2017, has finalised GST at four tax slabs of 5%, 12%, 18% and 28%.
As with any taxation reform, some items are bound to be priced cheaper while some will become dearer. Real estate is one sector that is facing both increase as well as a decrease in prices in different segments within it. Here are some of the important changes brought about by GST that will affect homeowners.
Higher maintenance charges
Apartment maintenance costs are expected to rise. Currently, apartment owners who pay maintenance charges of Rs 5,000 and above pay a tax of 15.55%. Under GST, this has been raised by 2.5%, bringing the total tax to 18%. However, this will not include utility bills or stamp duty.
On a similar note, housing societies that have accrued balances over Rs 20 lakhs in maintenance charge collections from apartment owners will have to pay the same GST. This too excludes stamp duty, utility charges, and property taxes. However, if materials like cement or paint are used for the upkeep and renovation of the property, the corresponding tax will be subtracted from the total GST collected.
GST for properties under construction
While the sale of property and land has been excluded, properties that are under construction will fall under the purview of GST. Leasing of land, building rent, and EMIs being paid for buildings under construction are included in the Central GST (CGST) bill, which is one of the four types of GSTs that have been introduced.
At 12%, the GST levied on under construction buildings might lead to a spike in overall housing prices. On the other hand, the introduction of a single tax will also smoothen out the various discrepancies that currently exist in the real estate pricing mechanism due to various direct and indirect taxes.
Although 12% appears to be a steep figure, this can be balanced out by the Input Tax Credit (ITC) on construction raw materials. For example, a house costing Rs 1 crore might now be cheaper by 3 to 4 lakhs after deduction of ITC.
GST on affordable housing
Affordable housing, which currently costs up to Rs 30 lakhs will fall by 4%-5%, estimate builders, as they are exempt from GST. Currently, homeowners have to pay 4.5% service tax upon taking possession of the house.
GST is a welcome change to the complicated taxing system that currently exists in India. However, experts bring in caution by reminding that a lot depends on its flawless implementation and collaboration. The success of GST depends on the GST Network (GSTN), which is the technological foundation for the new tax system. Every sale, every trade, every purchase, and other aspects will need to be entered and registered in the system, preventing tax evasion and other financial misconduct.
With 37 forms to be filed in a year, businesses to set up compliance software, internet connectivity issues in interior areas, and other problems, the implementation of GST is not going to be an easy task. But a little effort will ensure all round benefits in the long run.
