In Year 2017, the Parliament passed a bill to roll out- GST, which is, without doubt, the most important tax reform in India recently. The GST council set the rates of the new tax regime. These rates would range from 5% to 28%, with 18% and 12% as standard rates.
Items of mass consumption are taxed at 5% while luxuries would be taxed at 28%. After implementation, GST has subsumed 17 indirect taxes. It will get rid of the discrepancy in the structure of taxation across the country and implement a uniform tax rate.
GST and Real Estate
The real estate sector has been found to account for around 5% of India’s GDP and is considered the second biggest employer in the country.
But, in the past, the sector has faced issues as per fiscal policy decisions and macroeconomic conditions. One such issue in the past was the management of multiple indirect tax levies like registration fees, service tax, VAT, stamp duties, excise duties, etc.
Since GST will subsume multiple indirect taxes, it will simplify compliance of taxes and reduce the chance of double taxation. This is cause for cheer for home buyers, even if they have to shell out slightly more when there is high standard GST rate.
GST is expected to contribute 2% to the GDP of India. This is a major boost for the Indian economy. In case, the economy does well, there will be more demand for real estate, and it will encourage the growth of the sector.
Slight Hike in Rates
Because buyers do not have the liability to pay any indirect tax for buying ready-to-move properties, the impact of GST on buyers on resale properties will be very little. But, in case of transactions of under-construction projects, the buyers have to pay service tax and value-added tax (VAT).
VAT is a levy by the state and differs from state to state. Service tax is a central tax set at 15%. In sum, current tax rates on home purchases are high and are very complex.
Majority of customers of under construction properties take home loans to finance their purchases. The calculations involved in home loan process are also very complicated. Many buyers neglect the study of tax rates and undertake investment based only on the value of the property.
For instance, in case of the VAT, there is no clarity on which amount is paid at what level. Very often, for lack of clarity of VAT in a state, the buyer has to depend on clauses stipulated in the sales agreement with the developer.
Sadly, the buyer does not know the right rate, in spite of detailed research. He faces lengthy government documents, and in case, you are not a professional accountant, you might get lost in the research.
Thus, when there is a uniform tax rate like GST, which subsumes all taxes that need to be paid to the government, the payment process becomes easier for the buyer. Thus, a slightly higher tax rate is acceptable to stakeholders, because of simplification of procedures.
GST is also expected to bring down project costs for developers, thus making cheaper, the residential property. This is because a uniform rate of tax brings down the cost of inputs of construction. This boosts liquidity in the market and enhances sales of homes.
There is no doubt that GST will be a game-changer of the economy, including the real estate sector. Real estate businesses can take the help of gst tax software for easing their accounting procedures.
Author Bio:- I am Naveen Kumar author of logicpin I like to write about technology and WordPress blog we are open to accept free guest post sites on our blog where you can list your blog and website for getting more content.