The Goods and Services Tax (GST), a revolutionary tax reform rolled out in July 2017, effectively replaced the previous complex taxation system that existed in India like VAT, central excise duty, commercial tax, service tax, octroi, etc. It made India a ‘tax-neutral’ nation – and while it evoked a response best described as ‘mixed’ from real estate buyers, most of them are in favour of it.
However, even almost a year after GST implementation, the only real clarity that exists for property buyers is on the prevailing GST rate of 12% on under-construction projects. There is still confusion about the amount of rebate that a prospective homebuyer is entitled to on the back of the pass-over of input tax credit (ITC). The confusion is not only about the percentage of ITC but also on the mode and tranche of the rebate.
On their part, developers are stating that they have to do multiple calculations to arrive at ITC and will pass it on only during the final tranches only. With this lack of transparency on ITC, homebuyers are understandably upset because as of now, their overall payment has increased.
The ready-to-move-in vs under-construction debacle
On the one hand, ready-to-move-in properties which have been issued completion certificates are out of the GST ambit and attract no tax from homebuyers. On the other hand, under-construction properties attract 12% GST with full input tax credit. This is causing homebuyers to abstain from the latter option, which was earlier the more attractive one due to the cost arbitrage developers offered on them.
Ongoing challenges
Real estate stakeholders still face considerable challenges in the metamorphosis period from the pre-GST regime to the post-GST era. These include:
- Complex tax slabs
- Hiccups in the deployment of supporting IT infrastructure
- Confusion about the integration of ITC
- Various blurred components of GST such as abatement for land values and anti-profiteering provisions
The lack of clarity on the rules and regulations under the anti-profiteering clause, which was incorporated to pass on the benefits of ITC to end-users, is a particularly prominent pain-point with GST as of now.
GST’s impact on prices
Although it was anticipated that GST will reduce property prices in India, we have not seen such a significant impact. If the stamp duty and registration fees would be subsumed under the GST regime, we would definitely see the overall cost of property purchase come down.
End-users have not received a consummate benefit because of the inherent ineffectiveness of the anti-profiteering provisions. They will only benefit if the base property prices are reduced and developers pass on the tax credits to their customers.
The road ahead
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.
This article is contributed by Anuj Puri, Chairman, ANAROCK Property Consultants.
(The views expressed here are solely those of the author and do not necessarily represent or reflect the views of RoofandFloor)
Further reading
- One Year of GST: In Conversation with Niranjan Hiranandani
- One Year of GST: No Impact on Property Prices
- GST for the Real Estate Sector should be Lowered – Parveen Jain