Not the quick­est start for GST in re­alty sec­tor

CON­FUS­ING TIMES In the first week of the in­tro­duc­tion of the GST, the hous­ing sec­tor is still to come to terms with the new tax regime with both buy­ers and builders look­ing for greater clar­ity

Hindustan Times (Chandigarh) - Estates - - ESTATES - HT Es­tates Cor­re­spon­dent ht­es­tates@hin­dus­tan­ n

The un­der-con­struc­tion hous­ing seg­ment came to a stand­still in the first week af­ter the in­tro­duc­tion of the Goods and Ser­vices Tax (GST). Th­ese are still ini­tial stages for all the stake­hold­ers to un­der­stand the im­ple­men­ta­tion and im­pli­ca­tions of the new tax regime and there is a lot of con­fu­sion about it.

“Be­fore the in­tro­duc­tion of the GST, builders were ask­ing buy­ers to make full pay­ment. Buy­ers were be­ing told that the tax rate will in­crease af­ter the in­tro­duc­tion of GST. But, now this has also stopped.”

“It will take at least three months or one fi­nan­cial quar­ter for things to be­come clear,” says 48-year-old Lud­hi­ana real­tors as­so­ci­a­tion pres­i­dent Deepak Badyal.

The gov­ern­ment no­ti­fied the GST on un­der-con­struc­tion real es­tate at 18% that will be ap­pli­ca­ble on two-thirds of the value of the prop­erty. Af­ter the ad­just­ment to the land cost, the ef­fec­tive tax is 12% of the sell­ing price of a prop­erty.

Builders ar­gue that the land cost com­po­nent in the to­tal price of a prop­erty varies from place to place and time to time, ask­ing for a greater clar­ity on the is­sue.

Ra­jin­der Mit­tal, 56, Mit­tal Group of Com­pa­nies chair­man says, “Th­ese are tricky times for the in­dus­try. The gov­ern­ment has kept one-third as the land cost and im­posed 18% GST on the two-third cost of a prop­erty. While the ba­sic con­struc­tion cost is sim­i­lar in most lo­ca­tions, there are wide vari­a­tions in the land costs.”

“But the gov­ern­ment has kept the cost of land around 33% for all lo­ca­tions. This is not prac­ti­cal and pru­dent. This will lead to prob­lems for both builders and buy­ers. What if the land cost is more than 50% of the prop­erty cost? What will builder sup­pose to do in such a scenario? This will lead peo­ple to avoid un­der-con­struc­tion prop­erty and go in for only the readyto-move prop­er­ties.”

The is­sue of in­put tax credit is also cre­at­ing con­fu­sion.

“If a builder has con­structed more than 80% of the prop­erty and buyer has also paid 80% of the price and the ser­vice tax. In this scenario, ex­clud­ing the oneyear pe­riod, the in­put tax cred­its will not be avail­able and builder will not be able to pass on any ben­e­fits to the buyer,” says LC Mit­tal, 47, di­rec­tor, Mo­tia Group.

Con­fu­sion also pre­vails re­gard­ing the im­pact of the in­put tax cred­its on the hous­ing sec­tor. “On some raw ma­te­ri­als tax has in­creased and on oth­ers de­creased. But more im­por­tantly, there are some ma­te­ri­als on which there is no tax, but are im­por­tant in­puts in the con­struc­tion in­dus­try. So the im­pact of in­put tax cred­its will be at most mix and is un­likely to re­duce prices,” says Ra­jin­der.

The ready-to-move or com­pleted prop­erty seg­ment gained from the con­fu­sion in the un­der­con­struc­tion seg­ment.

“Al­ready the buyer was in­clined to­ward the com­pleted projects. But, now so much con­fu­sion and ex­pec­ta­tion of in­crease pay­ment of tax, the buyer is to­tally mov­ing to­wards the ready-to-move seg­ment.”

“There is no GST on the seg­ment, and the to­tal tax comes out to be in the range of 7% to 9%, which is less than the 12% GST. In case the builder is not pass­ing the VAT (value added tax) to the buyer it is around 4.5% only,” says LC Mit­tal.


Con­fu­sion also pre­vails re­gard­ing the im­pact of the in­put tax cred­its on the hous­ing sec­tor.

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