Goods and Services tax: The im­pact of GS Ton home buy­ers

The real es­tate sec­tor will come un­der the am­bit of GST. How­ever, as of now, there is lack of clar­ity on as­pects such as whether the GST rate will re­main at par with cur­rent taxes and whether af­ford­able or low­cost hous­ing will re­main out of GST’s am­bit

Hindustan Times (Chandigarh) - Estates - - NEWS - Ash­wini Kumar Sharma ht­es­tates@hin­dus­tan­

NEWDELHI: The big­gest re­form in the in­di­rect tax regime is set to get im­ple­mented very soon. In­stead of dif­fer­ent types of taxes—cen­tral, state, lo­cal and so on—soon there will be only one tax: the Goods and Services Tax (GST). Like any other sec­tor, real es­tate will also come un­der the am bit of G ST. How­ever, as of now, there is lack of clar­ity on var­i­ous as­pects such as whether the rate of GST will re­main at par with cur­rent ap­pli­ca­ble taxes and whether af­ford­able or low-cost hous­ing will re­main out of the GST’s am­bit. Read on to know what im­pact GST will have on the real es­tate sec­tor in In­dia.


When you buy an un­der- con­struc­tion house, ser­vice taxis levied on a cer­tain per­cent­age of the to­tal value of the prop­erty, which is con­sid­ered the cost of con­struc­tion. Cost of land is ex­cluded from ser­vice tax. To do this, in­come tax pro­vi­sions al­low abate­ment to the tune of 75% on un­der-con­struc­tion prop­er­ties cost­ing less than ₹1 crore; hence, ser­vice tax is cal­cu­lated on 25% of the gross value. And, 70% abate­ment is al­lowed for prop­er­ties cost­ing morethan₹1 crore: ser­vice tax is levied on 30% of the value.

Given that ser­vice tax of 15% is charged only on the con­struc­tion cost, the ef­fec­tive rate on the en­tire value of a prop­erty cost­ing be­low₹1 crore is 3.75%(i.e., 15%* 25% of the prop­erty value), and for a prop­erty above ₹1 crore, the ef­fec­tive rate is 4.5%(15%*30% of the prop­erty value). Thus, if you buy a prop­erty at ₹80 lakh, you will have to pay ₹3 lakh (3.75% of ₹80 lakh) as ser­vice tax. And, if the prop­erty was ₹1.6 crore, ser­vice tax would be ₹7.2 lakh (4.5% of ₹1.6 crore). Once GST gets im­ple­mented ,“Pay­ment of ser­vice tax on the prop­er­ties un­der con­struc­tion does not arise. It will be re­placed with GST,” said Ku­nal Wad­hwa, part­ner-in­di­rect taxes, PwC.

Be­sides that ,“Ex­ist­ing abate­ments un­der the ser­vice tax laws are also tobe done away with post im­ple­men­ta­tion of GST,” added Wad­hwa. So, it is likely that tax will be charged on the ac­tual con­struc­tion value.

How­ever, the con­cern is whether the GST rate would be higher than the pre­vail­ing ser­vice tax rate or lower.

“It is ex­pected to re­main around 12% or lower than 15% (the cur­rent ap­pli­ca­ble ser­vice tax rate). It will not be on the higher side at around 18%,” said Ab his he kRas­togi, part ner, Khai­tan& Co. If the G ST rate re­mains on the lower side, it will bring down the over­all cost of houses.


Some states like Haryana and Delhi also charge value added tax (VAT) on un­der-con­struc­tion prop­er­ties, which is again borne by a homebuyer. How­ever, once GST gets im­ple­mented “the cur­rent com­po­si­tion schemes for de­vel­op­ers un­der VAT laws of re­spec­tive states would come to an end,” said Naveen Wad­hwa, deputy gen­eral man­ager, Tax- VAT is a state sub­ject and varies be­tween 1% and 5% of the prop­erty value. How­ever, “There is a lot of lit­i­ga­tion go­ing for­ward on this ac­count,” said Nan­gia. There are many con­tentious is­sues for both de­vel­op­ers and home buy­ers re­gard­ing VAT. Some cases have also reached the apex court. Once G ST gets im­ple­mented“it will sim­plify tax struc­ture and re­duce the scope for lit­i­ga­tion, how­ever this may in­crease the cost of real es­tate in states that never had VAT.”


A homebuyer has to pay stamp duty to get the prop­erty regis- tered. Even af­ter GST, “Stamp duty will con­tinue, as GST will not sub­sume stamp duty levied by gov­ern­ment,” said Wad­hwa.

Stamp duty is cal­cu­lated as a per­cent­age of the agreed value of the prop­erty, or the cir­cle rate (the min­i­mum price on which a prop­erty can be trans­acted, which is de­cided by the gov­ern­ment), which­ever is greater.

In ad­di­tion to stamp duty, typ­i­cally 1% of the value of a prop­erty is charged as regis­tra­tion fee for regis­tra­tion of prop­erty doc­u­ments( sale deed ). In some states, if a prop­erty is bought in the name of a woman, the stamp duty levied is lower. For in­stance, in Delhi, prop­er­ties reg­is­tered in the name of women at­tract 4% stamp duty, com­pared to 6% oth­er­wise. How­ever, in case of joint own­er­ship, where the prop­erty is bought jointly in the name of a man and a woman, buy­ers have to pay stamp duty of 5%, in case of Delhi.

In some states, stamp duty also de­pends on the re­gion in which a sale deed is ex­e­cuted. For in­stance, in Haryana a man is re­quired to pay 8% stamp duty in ur­ban areas and 6% in ru­ral areas, while women have to pay 6% in ur­ban areas and 4% in ru­ral areas.

“The Task Force on Goods and Services Tax rec­om­mended in the Thir­teen th Fi­nance Com­mis­sion that real es­tate sec­tor should be in­te­grated into the G ST frame­work by sub­sum­ing the stamp duty on im­mov­able prop­er­ties levied by the states, to fa­cil­i­tate in­put credit and elim­i­nate the cas­cad­ing ef­fect,” said Nan­gia.

But “due to po­lit­i­cal and eco­nomic con­sid­er­a­tions, stamp duty—which is a good con­trib­u­tor of rev­enue to state gov­ern­ment—is not sub­sumed in the GST frame­work for the time be­ing,” added Nan­gia.

As of now, taxes and du­ties can in­crease the cost of prop­erty by 15-18% for home­buy­ers. Af­ter G ST gets im­ple­mented, whether the cost of houses will come down or in­crease, will de­pend on the rate at which GS Tis charged and whether there will be any abate­ment or not.



Some states like Haryana and Delhi also charge value added taxon un­der­con­struc­tion prop­er­ties, which is again borne by a homebuyer

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