The GST Bill was approved in the LokSabha on March 29, 2017 with four supplementary legislations- The Central GST Bill, 2017; The Integrated GST Bill, 2017; The GST (Compensation to States) Bill, 2017; and The Union Territory GST Bill, 2017. GST, the goods and service tax that has been implemented on July 1, 2017, has simplified the complex tax structure in India. The multitude of indirect taxes have been reduced to four tax rate slabs, i.e., 5%, 12%, 18% and 28%. This simplification of tax regime has impacted different sectors differently.
The Real Estate and Regulation Act (RERA), implemented on May 1, 2017, provides a mechanism for this tax regime. The government aims to bring transparency and simplicity in the Indian Real Estate Sector.
Real estate sector has implications on developers, buyers encompassing cost of land, material and building cost. In the course of GST, the cost of materials has undergone some changes like cement, paints and plasters will now be taxed at 28% while iron material will be taxed at 18%. Service charge falls under the 18% category, therefore, the fee given to a realtor for assistance will see a minor increase.
Under revised order from the government, under-construction properties will be taxed at 18% which includes 9% SGST plus 9% CGST. The government has also allowed deduction of land value equivalent to one-third of the total amount charged by a developer, thus, making the effective tax rate as 12%. However, in the new regime the quantum of ITC will be higher though overflow of credit is restricted. The price of a property is an outcome of demand and supply dynamics, not taxes alone.
The government expects the developers to pass on the input tax credit to the buyer. In the GST regime, the transaction cost increases to 12%, with input credit available on both, services and material. Property transaction costs will increase by 6%, in case no input credit is passed on by developers. If developers pass on the input credit to buyers, the property price increase could be restricted to 1-2%. If the developers pass on the credits completely and bring down the base prices, then, home buyers may marginally benefit under the GST regime.