Is GST Going to Be Cost Saving for Real Estate?
Jul 14, 2017 Real Estate News
There is no doubt about it that GST is surely going to bring some uniformity and parity in payment of taxes, especially in the real estate sector. From this point of view, the entire procedure of buying and selling of property would be benefitted as GST would bring the much needed transparency in real estate sector.
But one question is still haunting the minds of the real estate investors. That is: whether GST is going to reduce the burden of the amount of money paid in taxes by the developer as well as the buyer. Although the controversy regarding the rise in the burden of projects that are nearing completion has been settled down, the notification on rates has generated fresh speculation.
The Government has notified that:
According to the current service tax scheme, an abatement of 70 percent was allowed on the total value of the property to adjust against the value of land and commodities used for the construction of a housing unit. Because of that, the buyers had to pay only service tax of 15 percent on 30 percent of the value of the property. Therefore, the net service tax rate of real estate was 4.5 percent.
This time, as the term abatement has not been used by the Government, the developers are apprehensive. They fear that the new method may be used to increase the tax without putting construction of houses in a different slab of GST. Nevertheless, real estate developers associations such as CREDAI and NAREDCO have placed their demands about GST. They have categorically demanded that GST on the construction of real estate should be kept at 12 percent with a reduction in the value of property prices for the land element by 33.33 percent.
However, some reliable sources have given assurance that the final applicable amount of GST will indeed be 12 percent. But still, there is a lot of anxiousness and anticipation in the minds of all those people who are connected with Indian real estate market some way or the other.
But one question is still haunting the minds of the real estate investors. That is: whether GST is going to reduce the burden of the amount of money paid in taxes by the developer as well as the buyer. Although the controversy regarding the rise in the burden of projects that are nearing completion has been settled down, the notification on rates has generated fresh speculation.
The Government has notified that:
- In case of under construction projects, 18 percent GST would be applicable on two-thirds of the value of the property.
- However, the effective rate will come down to 12 percent when calculated on the entire value, which is also the rate that had been announced last month after the crucial meeting of the GST Council.
- There is good news for the people who are planning to buy land. As land is an asset that is neither classified as goods nor is it a service, a discount of 33.33 percent on property value has been given against the land price. However, this has been acquired only after the court has pronounced to its effect.
According to the current service tax scheme, an abatement of 70 percent was allowed on the total value of the property to adjust against the value of land and commodities used for the construction of a housing unit. Because of that, the buyers had to pay only service tax of 15 percent on 30 percent of the value of the property. Therefore, the net service tax rate of real estate was 4.5 percent.
This time, as the term abatement has not been used by the Government, the developers are apprehensive. They fear that the new method may be used to increase the tax without putting construction of houses in a different slab of GST. Nevertheless, real estate developers associations such as CREDAI and NAREDCO have placed their demands about GST. They have categorically demanded that GST on the construction of real estate should be kept at 12 percent with a reduction in the value of property prices for the land element by 33.33 percent.
However, some reliable sources have given assurance that the final applicable amount of GST will indeed be 12 percent. But still, there is a lot of anxiousness and anticipation in the minds of all those people who are connected with Indian real estate market some way or the other.
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