GST - A Game Changer for Real Estate Business

The second largest employer after the IT industry, the real estate industry contributes about 5% to the nation’s GDP. With the introduction of Goods and Services Tax (GST) this industry is about to witness the biggest indirect taxation reform in the country.

After getting the approval of both Parliament houses, GST is all set to roll out in April 2017. It will subsume more than 16 indirect taxes like excise duty, customs duty and CST into one, simplifying tax compliance while minimising the scope for double taxation. As per industry experts, this could earn transparency in the real estate and even reduce the cost of ownership of homes. 

How it affects Buyer 

Presently, a buyer pays Value Added Tax (VAT) and Service Tax on the purchase of an under construction residential unit. While service tax is deposited with the central government, VAT remains with state government (which varies state by state). With GST, Service Tax and VAT will be replaced by Central GST and State GST. The GST rate will most probably be lower than all the current rates put together – a direct benefit for the buyer. 

How it affects Builder 

On the other hand, developers of such project bear many non-creditable tax costs, which are subsequently passed on to the pricing of the final product. Believe it or not, these taxes add upto 22%-25% of the price of the unit. As GST aims at rolling multiple taxes into one, the construction cost will come down. This way, the developers will be able to pass a fraction of this benefit to buyers too, which means homes would, in fact, become cheaper.

The Bigger Picture 

GST will single-handedly solve many challenges faced by the realty sector, saving everyone from the current taxes that involve unthinkable complexities. It is expected to add about 2% to the nation’s GDP as well - a substantial boost to the economy.