What is the im­pact of GS Ton res­i­den­tial real estate sec­tor?

Im­ple­men­ta­tion of GST will ben­e­fit all the stake­hold­ers of the res­i­den­tial real estate sec­tor as the per­cep­tion of the sec­tor will im­prove on the back of a sim­pli­fied tax struc­ture and ac­count­abil­ity be­ing fixed at ev­ery stage

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Anuj Puri feed­back@hin­dus­tan­times.com Anuj Puri is chair­man , ANAROCK Prop­erty Con­sul­tants Pvt. Ltd.


NEWDELHI: The switchover to the GST regime is un­doubt­edly one of the big­gest tax re­forms in post-in­de­pen­dence In­dia. From July 1, 2017, GST ef­fec­tively cuts through a con­found­ing Gor­dian knot of tax­a­tion com­plex­ity in the coun­try.

In other words, it re­places the mul­ti­ple taxes levied by the cen­tral and state gov­ern­ments and will be­come sub­sumed of all the in­di­rect taxes, in­clud­ing cen­tral ex­cise duty, com­mer­cial tax, oc­troi tax/charges, val­ueadded tax (VAT) and ser­vice tax.

GST has been pre­dom­i­nantly con­cep­tu­al­ized around a ‘One Na­tion, One Tax’ phi­los­o­phy and will: • Help elim­i­nate the pre­vi­ous

cas­cad­ing tax struc­ture • Ease com­pli­ances • Cre­ate uni­form tax rates and

struc­ture, and • Help in re­duc­ing ad­di­tional

tax bur­dens on con­sumers. How­ever, the big­gest game changer in GST is the in­tro­duc­tion of in­put tax credit, whereby cred­its of in­put taxes paid at each stage of pro­duc­tion or ser­vice de­liv­ery can be availed in the suc­ceed­ing stages of value ad­di­tion. This makes GST fun­da­men­tally a tax only on value ad­di­tion at each stage.

This means that the end con­sumer will thus only bear the GST charged by the last dealer in the sup­ply chain, with set-off ben­e­fits at all the ear­lier stages. To en­sure that man­u­fac­tur­ers, de­vel­op­ers and ser­vice providers pass on the ben­e­fit to the fi­nal cus­tomer, the govern­ment has in­cluded an anti-prof­i­teer­ing clause in the GST bill un­der sec­tion 171 of the GST law.

This clause clearly states that it is manda­tory to pass on the ben­e­fit tax re­duc­tion due to in­put tax credit to the fi­nal cus­tomer.


To say the least, the In­dian real estate sec­tor has been go­ing through sig­nif­i­cant trans­form in the re­cent times.

The re­cently im­ple­mented Real Estate (Reg­u­la­tion and De­vel­op­ment) Act (RERA) has al­ready started ad­dress­ing the is­sue of non-trans­parency and af­fixes a level of ac­count­abil­ity on real estate builders and bro­kers, which is un­prece­dented in the his­tory of the In­dian prop­erty sec­tor.

For the res­i­den­tial real estate sec­tor, the im­ple­men­ta­tion of GST will def­i­nitely be a pos­i­tive sen­ti­ment booster among prop­erty buyers.

GST may not be in­stru­men­tal in bring­ing down the prices of res­i­den­tial real estate over the short term.

How­ever, it will ben­e­fit all the stake­hold­ers of the res­i­den- tial real estate sec­tor, as the per­cep­tion of the sec­tor will im­prove on the back of a sim­pli­fied tax struc­ture and ac­count­abil­ity be­ing fixed at ev­ery stage.


A sim­ple and trans­par­ent tax ap­plied on the pur­chase price is the big­gest take- away for prop­erty buyers.

VAT (with rates dif­fer­ing from one state to another) and ser­vice tax to­gether ac­counted for 7-9% of the ticket price for a res­i­den­tial prop­erty, which is 3-4% lower than the GST rate.

How­ever, due to in­for­ma­tion asym­me­try, con­sumers were largely un­aware of how VAT and ser­vice tax are cal­cu­lated – def­i­nitely, the en­tire tax cal­cu­la­tion was too com­plex for laypeo­ple to un­der­stand.

Any real estate prod­uct com­prises of three ex­pense com­po­nents, namely land, ma­te­rial and labour or ser­vice costs. VAT is cal­cu­lated on ma­te­rial cost, and ser­vice tax is cal­cu­lated on labour and ser­vice cost. It is very dif­fi­cult for buyers to as­cer­tain what com­po­nents were in­cluded for cal­cu­la­tion of VAT and ser­vice tax.

The im­ple­men­ta­tion of GST makes the cal­cu­la­tion much sim­pler, since the buyer has to pay only a sin­gle goods and ser­vices tax. Also, the builder must pass on the ben­e­fit of the price re­duc­tion he en­joys due to in­put tax credit to the buyer.


The af­ford­able hous­ing sec­tor, which is a ma­jor thrust area of the in­cum­bent govern­ment and is the corner­stone of its ‘ Hous­ing for all by 2022’ vi­sion, will not be im­pacted by GST.

This has been clar­i­fied by the an­nounce­ment from the fi­nance min­istry, which in­di­cates that there will be no tax un­der GST for hous­ing projects which comes un­der the af­ford­able hous­ing scheme.


In the pre­vi­ous tax regime, real estate de­vel­op­ers also grap­pled with the chal­lenge of mul­ti­ple tax­a­tion. On var­i­ous con­struc­tion ma­te­ri­als they pur­chased, builder paid cus­toms duty, cen­tral sales tax, ex­cise duty, en­try tax, etc., thus cre­at­ing var­i­ous in­stances of mul­ti­ple tax­a­tion. The cu­mu­la­tive bur­den even­tu­ally got passed on to the buyer.

GST will elim­i­nate all the other taxes, and the ben­e­fit of be­ing able to claim in­put tax credit can also im­prove de­vel­op­ers’ profit mar­gins.

Ma­jor con­struc­tion ma­te­ri­als have not seen a ma­jor change in tax rate.

• Ce­ment will be taxed at the rate of 28% un­der GST, which is higher than the cur­rent av­er­age rate of tax around 20-24%

• Iron rods and pil­lars will be charged at the rate of 18%, which is sim­i­lar to the av­er­age rate of 20% un­der the old tax­a­tion regime

• Paint, wall fit­tings, plas­ter, wall­pa­per and ce­ramic tiles will be taxed at 28%, which is also sim­i­lar to the pre­vi­ous av­er­age rate of 20-25%

• Sand lime bricks and fly ash bricks will be taxed at 5%, which is lower than the pre­vi­ous rate of 6%.

How­ever, the mar­ginal change in the per­cent­age of these vari­ables will make a huge difference as trans­porta­tion and lo­gis­tics costs re­duce in the sin­gle tax­a­tion sys­tem.

While there might be mar­ginal im­pact on the real estate sec­tor in the near term, we are def­i­nitely look­ing at a sig­nif­i­cant im­prove­ment in buyer sen­ti­ment and per­cep­tion of this sec­tor.

De­vel­op­ers too will find the GST regime much sim­pler to work with, with the ben­e­fit of in­put tax credit be­ing an added ad­van­tage.


For the res­i­den­tial real estate sec­tor, GST will def­i­nitely be a pos­i­tive sen­ti­ment booster among prop­erty buyers.

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