With the much awaited Goods & Services Tax on course to be rolled out on 1st of July this year, central and state governments are working in tandem to finalise the rules and regulations for its formation, implementation and smooth operation. Before we reach the touch-down date, one should be well aware of it would be effects on various industries and sectors that affect us during our daily routine.
Realty sector in India is still pretty much unorganised where GST might come out as a saviour for at least the taxation front. Till date, the central and state governments levied various kinds of taxes for land, property and other kinds of work contracts with the transactions mainly categorised in three parts- value of goods and materials, value of services and value of land. Also, there is a levy by the state governments through VAT on the goods, but at the same time, several states such as U.P. does not charge this. This levy is not clearly defined in certain states, where Haryana is an example. The biggest benefit that GST shall provide will be, the reduction of costs in under-construction properties. With a single tax regime, developers will get free input credits on GST paid for services and material purchased by them. If we move forth with the views of the industry experts, GST may boost the GDP growth of the country by 1.5-2 percent.
Implementation of GST will basically work on three major elements for this sector; simplification of tax structure, reduction in construction costs and enhanced transparency. Speaking about its contribution post acceptance, we are predicting a nationwide realty sector growth by almost 15-20 percent than projected in the course of next 5-7 years. There will be a quick reaction towards the sector by its customers as the demand is bound to increase due to reducing costs and improving transparency that has been the hurdle making this sector suffer for long now. Even the commercial realty players will be hugely benefitted as all the lost Cenvat credit, which is in current regime a cost to commercial developer can be availed if GST is applied in a free flow manner that will also help in reducing costs. A much simplified single tax rate, reduced construction costs and better transparency in the sector will be much welcomed by the developers and its customers.
Finally, there are four tax rates declared by the government where different sectors and industries will fall. Rates decided are 5, 12, 18 and 28 percent respectively, where the realty sector is yet to get its room. Although, the central government has promised to keep the affordable housing segment out of the loss bracket and has also announced that the housing sector might not feel any pinch after the implementation of GST.
Being one of the biggest contributors towards the GDP of India and generation of employment opportunities, the effects of GST on the real estate sector needs to be looked into very carefully as we are also catering towards a plan of ‘Housing for All’ by 2022 and require over 6 crore units in total.