The real estate industry in India has undergone major changes post the implication of RERA & GST by the government, earlier in the year.
While RERA (Real Estate Regulation & Development) was introduced to regulate the malpractices of delays and frauds in the industry, GST (Goods & Services Tax) aimed at standardizing and bringing tax neutrality.
Much has been talked about their impact on real estate sector, where both developers and buyers have speculated on common queries.
Will the prices go down?
Are the taxes up or down post GST?
Would RERA be a standard regulatory in all states?
What is the GST for under construction projects?
Would the input tax credits be passed to buyers on an already completed project?
Will it get easy to buy a residential property or complicate the situation?
You have so many questions in your mind post implementation of RERA and GST. Let’s address these concerns, which inhibit a buyer in making a property purchase decision.
Prior to implementation of GST, there was an umbrella of real estate tax transactions like Vat, Service Tax, Stamp duty, along with registration charges. And these were imposed and calculated differently in each state in a cascading manner. For example: in Mumbai (Maharashtra) VAT was 1% and stamp duty 5%, while in Bengaluru VAT was 4.5 % with 5.7 % as stamp duty.
GST has replaced all these complicated taxes and brought in a standard taxation for each state. This simplifies the property registration for buyers as there is tax neutrality in all of the country.
Exceptions like service tax on land value and already completed projects have been exempted from GST, but the major concern was on under construction projects.
The tax structure in GST ranges between 9, 12, 18 to 28% and for under construction projects GST falls under 18% barrier (9% CGST & 9% SGST). But, due to lowering down of input costs, the tax barrier, the final tax would be calculated as 12%.
This might be marginally higher than the overall tax calculated in some states (by 1-2%) but input credits shall make up for it.
RERA has removed the regulations and has established the regulatory authority in the industry.
Now, banks don’t sanction loans to developers who haven’t registered under RERA. Builders can no longer use 100% of total funds collected from the buyers and it’s mandatory to maintain 70% of total funds in a separate bank account.
Now, they can’t purchase input & construction materials from non-registered sellers, as they have to pass input credits to buyers.
These laws combined with other regulations under RERA shall bring transparency and shall strengthen the trust of buyers because they now get a legal regime for a purchase of a property.
With the reduction in the cost of construction material like Coal, Limestone, Ignite (5%), the overall input cost have come down and it shall bring down the purchasing cost in form of benefits passed by the buyers (under Section 171 of Anti Profiteering Clause of GST law).
Though in exceptions like sand prices have inflated and in case of natural calamities, the overall costs may differ.
Impact on abatement of land and the service tax on its value is still an unclear prospect and shall take few more months, but GST & RERA is touted as an extremely beneficial move for real estate industry and shall boom the sector in coming years.
It has benefitted the developers by removing the complications in tax structure and reduction in logistics costs, which ultimately benefits the end consumers (buyers) and has simplified the process of property registration for buyers.
They get rid of innumerable taxes like Central Excise Duty, VAT, and other entry-level taxes, but still would have to pay 15% tax on certain services like labor charges, legal charge, etc. but the input credits and lowering of logistics prices shall conclude in a profitable result.
One might face problems in already completed projects (before 1st July 2017), but this shall get better in few months when the tax system is more clear.
With GST & RERA, this is the best time to invest in property and own your dream house. Property prices have slashed down in past three years and there has been on cost appreciation in this industry.
Though state govt. may levy some additional taxes, the process is no more complicated and overall prices for residential properties will be low. Further, the industry is getting better regulated with the acceptance of RERA, which shall guarantee timely possession and promised quality.