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The implementation of GST has helped in mitigating the surging effect of taxes with construction services specifically being categorised as ‘supply of service’. As the impact of GST on property prices is dependent on the segmental classification of projects, customers opting for affordable housing projects will reap the maximum benefits.
In 2017, the Goods and Services Tax (GST) eliminates the taxation complexity in India. In simple terms, the unified tax reform replaces the multiple taxes levied by the Central and State governments. GST subsumed of all the indirect taxes, including excise duty, commercial tax, octroi tax/charges, Value-Added Tax (VAT) and service tax.
Talking about its impact on the residential real estate sector on its anniversary, GST has instilled a positive sentiment among homebuyers. It is obvious that implementation of GST may not be impactful in price correction of the residential real estate over the short term. However, the new tax reform will benefit the stakeholders in the long run. Unquestionably, the sector will improve on the back of a simplified tax structure in the years to come, claim experts. The GST is applicable on all under-construction properties at 12 per cent (excluding stamp duty and registration charges). The tax is not applicable to completed and ready-to-move-in projects.
The announcement by Central Government to reduce GST rate from 12 per cent to 8 per cent for affordable homes coupled with the credit-linked subsidy scheme (CLSS) under Pradhan Mantri Awas Yojana (PMAY) would fuel housing demand across the country. The GST rate cut will be given to first-time homebuyers with a family income of up to Rs 18 lakh per annum while buying a house of up to 150 sqm (1,615 sq ft) carpet area under the CLASS. However, homebuyers who do not qualify for CLASS will have to pay GST at 12 percent. The GST rebate will also be given to low-cost housing projects with infrastructure status where the maximum carpet area of the house is 646 sq ft. The first-home buyer condition is not applicable here.
Manju Yagnik, Vice Chairperson, Nahar Group, shares her views on the impact of GST on real estate in last one year.. The implementation of GST has helped in mitigating the surging effect of taxes with construction services specifically being categorised as ‘supply of service’. It has also resolved long-standing issues of valuation and nature of supply. The major benefit is with regards to increased input credit on the procurement of materials. Under GST, the effective tax rate for construction services is pegged at 12 per cent (8 per cent for specified housing projects) of the entire agreement value, with an abatement of one-third being provided towards land value. Taxation burden is high, and due to the GST regime, the gross tax outflow on investing in a property has seen a steep rise of up to 8 per cent, this is very high in terms of cash outflow. As the impact of GST on property prices is dependent on the segmental classification of projects, customers opting for affordable housing projects will reap the maximum benefits. Overall there has been an impact on the pricing of residential products which is mostly been subject to demand and supply forces in the market.