Ready to Move in Flats to Cost More Post GST
Jul 17, 2017 Real Estate News
The developers with a large number of unsold inventory are looking forward to passing the tax burden on the buyers due to the new GST system. Hence, the consumers might have to shell out more money for the ready to move in apartments.
However, it is expected that the new projects will be cheaper for the buyers.
Under GST, the tax implied on the under construction projects have gone up by 12 percent, which is an increase of 6.5 percent. The actual GST rate on the real estate is 18 percent but one third of it is deducted as the cost of the land, from the total cost charged by the developer.
Since GST offers an option for the full input set- off credit which is unfortunately not applicable on the ready to move in properties. Hence the developers will bear the burden of the higher tax or pass the same to the consumer making it costlier for the buyers.
Even though the one third deductions make the GST rate to 12 percent, there’s still three percent increment in the tax which was previously 9 percent including VAT and service tax. Since there isn’t much clarity on the same it is impossible to say who will bear this, the customer or the developer. With the new RERA rules as well, GST will increase the paperwork for both the developer and the buyer hence making it even more costly.
The intention behind GST is to bring more efficient taxing system though its implementation can see some pressing issues. There’s no doubt that it will lead to a better taxing system in the country.
The buyers looking forward to buying the affordable housing projects are rejoicing since there is no tax involved in the same. And since most of the country’s population falls on the middle income group belt, it can give small builders a chance to start affordable projects to cater the mass.
However, India rating maintains a negative outlook on the real estate sector for the financial year 2017-18. They expect a continuous slump in the sales of the real estate. This can result in the negative cash flow that this sector has been observing since 2014. This will result in the increase of the already debt ridden sector.
There isn’t enough clarity on the transitional provision under GST, whether it pertains to the credit of the inventory, credit on the unsold inventory or the tax implications where the part payments were made before GST and the rest is to be done post GST.
However, it is expected that the new projects will be cheaper for the buyers.
Under GST, the tax implied on the under construction projects have gone up by 12 percent, which is an increase of 6.5 percent. The actual GST rate on the real estate is 18 percent but one third of it is deducted as the cost of the land, from the total cost charged by the developer.
Since GST offers an option for the full input set- off credit which is unfortunately not applicable on the ready to move in properties. Hence the developers will bear the burden of the higher tax or pass the same to the consumer making it costlier for the buyers.
Even though the one third deductions make the GST rate to 12 percent, there’s still three percent increment in the tax which was previously 9 percent including VAT and service tax. Since there isn’t much clarity on the same it is impossible to say who will bear this, the customer or the developer. With the new RERA rules as well, GST will increase the paperwork for both the developer and the buyer hence making it even more costly.
The intention behind GST is to bring more efficient taxing system though its implementation can see some pressing issues. There’s no doubt that it will lead to a better taxing system in the country.
The buyers looking forward to buying the affordable housing projects are rejoicing since there is no tax involved in the same. And since most of the country’s population falls on the middle income group belt, it can give small builders a chance to start affordable projects to cater the mass.
However, India rating maintains a negative outlook on the real estate sector for the financial year 2017-18. They expect a continuous slump in the sales of the real estate. This can result in the negative cash flow that this sector has been observing since 2014. This will result in the increase of the already debt ridden sector.
There isn’t enough clarity on the transitional provision under GST, whether it pertains to the credit of the inventory, credit on the unsold inventory or the tax implications where the part payments were made before GST and the rest is to be done post GST.
Looking for property portal?
Related Articles
-
Why is this A Good Time for NRIs to Invest in India?
Jul 18, 2018 -
The Concept Behind The Lease of 99 Years
Jun 03, 2019 -
-
