GST Impact: Will ready-to-move Apartments Cost More or Less?: GST impact: Will ready-to-move apartments cost more or less?
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8 November 2018 - 14:00, by , in Current News, No comments

We analyse whether ready-to-move flats will become cheaper for home buyers since the GST applies to properties that have not received the occupancy certificate yet.

A perception has gained place within the Indian housing market that the GST, is solely applicable to under-construction projects & thus, ready-to-move-in flats are exempt from the GST. However, the tax calculations under the new regime, for the real estate market, aren’t so straightforward.

For example, the GST on under-construction projects are going to be imposed on housing buyers on the sale cost, but the credit can be availed by the developers, only on the value of construction. As the builder will have to check the GST on the total project and the input availed is somewhat on the construction cost, there could also be a niche that’s no fewer than thirty percent. Consequently, whether you choose an under-construction property or ready-to-move-in unit, the developer will raise the prices in that proportion, to make sure that this gap is bridged.

Impact of GST on Flats Sold by Developers

  • Ready-to-move apartments will have no GST; however, the developer will only get input credits on construction values.
  • Developers can get & pay GST on the amount of the project.
  • Flats might cost extra, due to GST compliances.
  • The premium charged for ready homes can nullify any benefits from the GST.

Praveen Jain’s (purchaser in Noida) developer has told him that the overall price of his home, worth 50 lakhs rupees, would now be higher by 1 lakh rupees. H,e wonders if the GST is deemed to simplify the tax structure & begin an age of ‘one nation, one tax,’ then, why a purchaser is expected to pay stamp duty over & above the GST paid during the construction stage.

“Even when service tax wasn’t applicable to ready-to-move-in flats, developers were escalating the worth during possession. With the GST regime, consumers won’t profit, as the developers will escalate the costs due to GST compliances during the development stage,” sobs Jain.

Tax Implication of GST on Real Estate Market

Industry stakeholders although maintain that the GST regime offers several advantages for house buyers. The value of construction is prophesied to cut back. Moreover, with input credit being accessible to developers, buyers who buy after the Occupancy Certificate has been granted, won’t have to bear the additional taxes that are a part of the deal in the existing market.

A CRISIL report shows out that at the moment, a developer handles excise tax and VAT, on inputs like cement & steel, at 27.7 percent and 18.1 percent, respectively, which vary from state to state. Now, under the GST regime, cement and steel will be taxed at twenty-eight percent and eighteen percent, respectively, while other inputs like paint and white goods, will be taxed at twenty-eight percent. However, the ultimate product – the housing unit – will be taxed at twelve percent, with credit for taxes paid on inputs. As the tax levied on the entire value including the land will be twelve percent, the amount would be enough to provide for the input credit for developers. Hence, a buyer choosing a ready-to-move-in housing is saved from the tax burden.

GST Forces Stakeholders to Evaluate New Business Models

NaushadPanjwani, the managing partner with investment banking firm Mandarus Partners, shows out that if the occupancy certificate for the project has been obtained, then, no GST will be applicable. He feels that developers’ prices will come down with the input credit, but lots of clarity is still required.

“Small suppliers are not required to register for GST if their turnover is beneath Rs 75,000. In such cases, the builder won’t get any advantage and would have to be careful in accounting. So, he might prefer to buy from registered dealers. Small vendors, therefore, will be impacted by the loss of business,” Panjwani explains.

Nikhil Hawelia, managing director of the Hawelia group, says that developers are already evaluating the benefits of the ‘build and sell’ model. According to him, beneath the new taxation structure and other regulatory frameworks, a market that gives ready apartments, makes more sense for buyers, as well as builders.

“A ton of buyers in beneath construction projects, are also inquiring whether they can advance their balance payment, to save the twelve percent GST that would be applicable from the following quarter,” says Hawelia.

The Goods & Services Tax is also applicable on financial services, at eighteen percent. Hence, loan processing charges are likely to extend in the Goods & Services Tax regime. Such costs always remain value in the hands of the client. It may not have much of an impression in the affordable housing segment, as the eighteen percent on loan processing charges in the vary of one percent, would be practically negligible. However, it’ll burn the pockets of buyers in the high-end segment.


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