There’s a lot of conjecture about how Goods and Services Tax (GST) will impact residential real estate. The rate of GST for under-construction and new projects has been fixed at 12%. Read on to know how GST will impact housing prices.
Prices not likely to go up
Though the present service tax is 4.5% and post-GST it will be 12%, there are little chances of prices going up. Why?
Currently, taxes paid by the builders are:
► On raw material and excise: 12.5%
► VAT on construction material: 12.5-14.5%
► Entry tax levy in different states
► Service tax on construction: 4.5%
► VAT under composition scheme: 1-2%
These taxes have a cascading effect, and consequently, the accumulated tax liability falls on the customer, resulting in a higher cost when he buys a home. So, 12% GST rate will replace nearly half-a-dozen existing taxes.
Besides the lower tax incidence on the buyer, the builder will also get input tax credit for material he uses in construction. The builder is bound to pass on the reduced tax liability benefit to customers since there is an anti-profiteering law too.
As the input tax credit will allow the builder to claim refund for the tax that has already been paid, and 12% rate will subsume multiple taxes, housing prices could even come down.
Under-construction versus completed projects
It would be difficult to say that under-construction projects will cost more to home buyers. The impact may vary with the degree of completion of projects and the kind of raw material used after GST kicks in.
MS Mani, Senior Director, Deloitte Haskins & Sells LLP, says, “Buyers of under-construction projects will be taxed at 12% on that portion of work that is completed after July 1. But the home buyers should also be aware that the levy of GST at 12% by builders would enable builders to avail input tax credits on their purchases of goods and services which are used after July 1.”
“Builders asking for early payments to avoid GST is strictly illegal as the payment terms in most projects would be based on slab completion, etc. and seeking payment before completion of the taxable event/milestone is incorrect, as the objective seems to be avoid GST,” Mani added.
On payment for projects that have already been completed, Ashwinder Raj Singh, CEO, ANAROCK Property Consultants, says, “We recommend home buyers to take buying decision based on their requirements. If they get a good deal before July 1, they should go ahead and take the decision.”
Maintenance charges of housing societies
If you stay in a housing society where your monthly maintenance charges are more than Rs 5,000, you may have to cough up more after GST. “The maintenance charges would come under GST if the residential welfare association or a co-operative housing society collects more than Rs 20 lakh per year and more than Rs 5,000 per apartment per month. At present, service tax is levied on the same at 15% and GST would be levied at 18%,” says Mani.
House rent
Currently, rent on residential dwelling for use as residence is exempted from service tax and will continue to be exempted under GST too. There is no GST on residential renting arrangements, hence the impact will be nil.
Only 3 projects registered with RERA in Rajasthan
Jaipur: It’s been nearly two months since the Real Estate Regulatory Authority (RERA) came into effect in Rajasthan but only 3 projects and 11 real estate agents have so far registered with the new regulatory across the state.
There are more than 300 unreconstructed and 1,000 constructed projects in the state. However, registrations of projects and agents is going on at a snail’s pace in the state.
As per the new rules, developers, projects and agents have 90 days to register after the RERA Act came into effect on May 1. The new regulatory authority is expected to end many troubles for home buyers as it brings transparency in the existing system.
Officials believe that number of registration will increase now as department has resolved the problems, which developers were facing in registering with RERA. “The developers in a meeting requested to simplify the process for registering with RERA. The department has few amendments following this. We are hoping more registration in near future as deadline will approach closer.”
The developers in the state complained that state urban development and housing (UDH) department had adopted Maharashtra provisions. However, it was not feasible for Rajasthan. “The developers have to provide details on 49 points, which are mentioned in the registration form. The process was complex and it requires two- three days to collect substantial documents for one point. Demand was made to simplify the process, so that we can start the marketing of our projects after registering,” said Abhishek Sharma a city based developer.
It was further said that the state government had appointed additional chief secretary (ACS) of urban development and housing (UDH) department as the regulatory authority for real estate sector.
Currently, Mukesh Sharma is holding the position of additional chief secretary in UDH department. However, it requires a dedicated head of regulatory authority along with 20-member staff to resolve the problems of consumers and developers. “Proposal to appoint four-member regulatory authority has been sent to the state government. The authority will comprise expert members of finance, planning, legal and administration department,” said a UDH official.
(This article was originally published in The Times of India)
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