GST will turn out to be a benefactor to the home buyers. As market is expecting up to 5 per cent drop in luxury residential property price across the country. Center and states have drawn a conclusion to fix the rates on completed apartments and houses at 12% bracket.
GST allows credit for tax paid on inputs such as cement, steel, paints and other items which result lowering the actual tax burden. It shows an apartment worth price of 1 crore may reduce by Rs 3-5 lacs. Along with the luxury properties affordable housing sector is likely to have a price correction too. For example low-budget flats in Kolkata or the affordable housing sector which cost approx 28 lacs (at Rs 3,000 per sq ft of built-up area) might drop by 5%. After GST implementation homebuyers will have to pay 4.5% service tax on the closing price of the property while obtaining the occupancy.
Country’s tax consultants and realtors affirmed that 12% tax slab for real estate is a commendable move as it’s convenient for the property buyers. It would induce lower tax liability or be tax neutral. Customer will gain from high-ending projects that cost up to 6K per sq ft. Although the premium projects won’t return much to the consumers on which developers work with a high margin; under these circumstances the net tax will remain unchanged. But if input credits are allowed properly then the 12% GST is welcoming to the homebuyers.
The current market scenario suggests that the affordable housing sector is an all-round gainer, as 12% would definitely bring down the tax liability. The taxes on inputs for project development are more than 12% of the ultimate property price.
As reported by the Crisil statement, currently, a builder pays excise tax and VAT on inputs like cement and steel at 27.7% and 18.1% correspondingly, which differ from state to state. Now on, cement and steel will be taxed at 28% and 18% respectively under GST. In the same way, other inputs like paints and white goods will be taxed at 28%. But a finished product i.e. a housing unit will be taxed at 12%, with the allowance of credit against taxes paid on inputs. But as 12% tax will be charged on entire cost including the land, the amount will be adequate to endow with the credit input.
Input credit could be exceeding the GST rate levied on the finished housing, but a developer can maintain a maximum credit to the extent of the GST he pays on a complete product. In a nutshell, GST will favorable for affordable housing sector as there won’t be any additional burden levied on the consumers. On the contrary, premium ranged properties won’t relax tax liability of homebuyers as developers build high-margins into such properties. 12% tax rate on construction is insufficient to level down the new tax liability. Naturally, the builder will recover the additional charges from the consumers.
- Somani Realtors News Network