GST has been talked about for years now but it could become a reality in the coming week. That’s certainly a cause for celebration because it is India’s largest indirect tax reform, one that will subsume most tax levies, both central and state, such as VAT, service tax, excise duty and likes. And when it does settle down, it could help bump up India’s GDP by at least 2 percentage points.
For the real estate sector, experts say GST could bring about greater transparency, possibly improve compliance on the part of builders.
GST will replace so many different taxes that builders currently pay, many of them bordering on double taxation, with one single tax.
It looks like completed homes will not be impacted by GST as a buyer already pays stamp duty to the government on the transaction. That will remain.
So there are two other categories left—selling an under construction apartment and renting of properties—which are likely to come under the ambit of this tax.
Since GST will be applicable on the materials that a builder would buy to construction a housing project, it will certainly impact costing of projects, but that said one needs to see what the final rate of GST would be.
If the rate is higher than all the current rates put together (anywhere between 22-25% of an apartments cost), it will certainly be a dampner, increasing the cost of buying an under construction for a home buyer with an additional burden of paying stamp duty to register the property in his name.
Fingers crossed. Here’s to hoping GST has a significant positive impact on the Indian real estate sector.
As one of the biggest and the most important economic reform since Independence GST has been at the center stage of discussion right from Parliament to Paan ki dukaan!
“Goods and Services Tax” would be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the Central and State governments. Goods and services tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer. Administrative responsibility would generally rest with a single authority to levy tax on goods and services. Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle.
The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India. Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax should lead to easier administration and enforcement. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%
In layman language, GST shall bundle almost all the current taxes on Goods and Services and roll them in one. This will effectively bring down the price for the manufacturer and hence the consumer as it intends to eliminate double taxation.
Article Courtesy & Thanks To: Ravi Teja Sharma, Assistant Editor, The Economic Times
About Author: Ravi Teja Sharma writes on real estate for The Economic Times