What is GST and Why It Is Beneficial for Home Buyers

Continuing its efforts to construct a robust and minimal tax structure, the central government’s pet project, the Goods and Services Tax (GST) bill, received a new boost last week. The GST council has announced final rates for the new tax regime. As per the council’s notification, the rates would be in the range from 5 to 28 percentage points coupled with 12 and 18 percent as standard rates.

It can be recalled that both the houses of the Indian parliament had approved the Goods and Services Bill back in August. Implementation of GST is supposed to be one of the biggest tax reforms in recent history. The said bill is to be implemented by the central government from the next financial year.

So what really is GST and what are its impacts on realty sector:
The Goods and Services tax, commonly known as GST is the indirect tax levy on the manufacture, sale, consumption, services of goods and commodities at the national level. The purpose of introduction of GST is to replace all kinds of indirect taxes that are levied on goods and commodities by the union as well as state governments. With just one common tax to pay and collect, GST aims to simplify the overall complicated structure of indirect taxes that prevails in the country right now.

Let us discuss GST in context to real estate:
According to the recent reports put forth by market analysis agencies, the realty sector is the second largest employer in the country and accounts for around 5 percentage points of India’s Gross Domestic Product (GDP). The flow of large amounts of money in real estate brings in several indirect taxes along with it. The property buying, selling, developing business involves various indirect taxes such as Value added tax (VAT), excise, stamp duty, registration charges, service tax to name a few. The advent of GST will simplify the payment of all these aforementioned charges and prove to be of great convenience for all the parties involved. Although home buyers might end up paying a little more due to high standard rates of GST, the overall process will bring in lots of simplicity in real estate and as a result will save lots of time and energy.

It is important for the government to ensure that the standard GST rate is kept as low as possible. Speaking on this matter, the current finance minister of India, Mr. Arun Jaitley has stated that the government will work hard to keep the GST rates as low as 17 percent. An increased use of GST is estimated to be worth 2 percent of India’s GDP which will ultimately result in a boost to the country’s economy. Moreover, the encouraging economy will no doubt benefit the ailing real estate sector.

Is GST beneficial for home buyers:
The GST, being an indirect tax is levied only on under-construction properties. At present, home buyers need to pay VAT as well as the service tax on buying properties. While VAT is levied by state and its rate differs across all the states in India, the service tax is charged by the union government. This tax structure is quite complex and takes a lot of energy as well as the time of all the parties involved. For example, in case of VAT, there is no clarity on what time and level one should pay the applicable tax. Also, while arranging finances, home buyers often fail to compute the amount of different taxes they need to pay on top of the property value. GST aims to remove these exact kind of hindrances that property buyers face while paying taxes. As per the GST bill, the home buyer will now have to pay only one uniform tax amount that will cover all the taxes that exist right now. So even if the GST might be a little higher than the prevailing rates, it will prove to be beneficial for all stakeholders in the longer run.