GST is ready to be rolled out on the 1st July and it will lead to a huge impact on a variety of goods and services. The rate of tax will vary according to the goods, the effects of the same on the real estate has been discussed here. Demonetization left a strong impact on the real estate of the Country, with GST being rolled out, there is hope for a brighter horizon for this sector.
Homebuyers will have to pay GST on the EMIs that are paid for the purchase of apartments which are under construction. Homebuyers will also pay GST on the EMI for all the additional costs which are collected by the developer. It is important to note that GST will not be charged on the rent income received for a residential unit and on completed apartments. GST will replace the current service charge of 15% on the rent of commercial property. The sector is likely to attract a tax rate of 18%, although there could be some variation in it. Clarification about the same is pending.
Although the Government has not yet decided the rate to be applied on the real estate which is under construction, depending on the rate, the cost of an apartment will either increase or decline. It is also not clarified whether homebuyers are eligible for the abatement scheme where an abatement of 75% is allowed for a flat size being less than 2000 sq ft and costing less than Rs.1 crore. If the flat size is larger and the cost is higher than Rs 1 crore, the abatement is 70%. If this abatement is excluded from GST, the tax rate will increase the cost of purchase of a residential unit.
Only properties which are under construction will be affected with the roll out of GST. Sale of land as well as buildings will remain out of GST. It will only attract the stamp duty which is levied by the respective states. The Government has stated that the property prices will not face inflation after GST is implemented. The affordable housing initiative has been exempted from service tax as well as GST. This is to ensure that the scheme achieves the targeted profit and ensures affordable housing for one and all. Builders are of the opinion that the roll out of GST will reduce the cost of ownership for the buyers of property, if the GST rate is lower than all the other tax rates. GST will bring in transparency in the buying process which will show a surge in the sales and help the builders. Builders see a positive sign in the coming years post the implementation of GST.
GST will help achieve the long term goals of the Government, which will allow housing for all and ensure complete transparency in the process of buying and selling. The total effect of the tax rate can only be determined after the rollout of GST, although, it can be said that the future of the real estate sector does look positive and promising.