Contrary to common perception, Goods and Service Tax (GST), will not bring down housing prices even though it will cut construction costs, a report released by real estate consultancy JLL and PwC today has pointed out.
While the effective rate of tax earlier ranged from 10 to 15 per cent, it is now 12 percent under GST. “Therefore, it may appear that GST would result in savings of at least three to four per cent to the customer. However, the ground-level reality may be different. The cost of land involved in the project significantly impact the ultimate savings the customer may derive under GST,” said the report on impact of GST on residential markets.
In any case, the estimated benefit may not exceed three per cent of the overall construction cost. And even this benefit will be available only to projects that are mostly or entirely executed post implementation of GST. “In the case of projects which have already commenced and are nearing completion close to the GST start date, there may not be any significant benefits that the developer can pass on to customers,” it added.
Kunal Wadhwa, Partner -Indirect Tax, PwC India said, “The impact on real estate sector has always been part of the limelight for any major reform. The implementation of GST is no exception. While the change brings in more transparency and maturity to the sector, the requirements under the anti-profiteering law has been a contentious issue for this sector.”
Abhishek Goenka, Partner and Tax Leader – Real Estate, PwC India said the benefit to the end customer would be seen primarily in projects executed post implementation of GST. “The Government should engage with stakeholders to address their concerns. This would help the market gain the needed momentum as anything related to the sector significantly impacts the sentiments of the economy.”
Ramesh Nair, CEO and Country Head, JLL India said GST has been a matter of discussion for both the demand and supply side of the real estate community. “While a transparent uniform taxation system is good, the exact details of ‘how’ to implement this needs to be addressed swiftly. The government has issued certain circulars to set clarity in this sector. However, the need of the hour is to engage with tax authorities and developers at different levels,” he added.