The implementation of Goods and Services Taxes (GST) has changed the country’s tax system drastically. Sanctioned by the Parliament on 29 March 2017, GST is a tax that has substituted every other indirect tax in the country. GST attempts to unify the tax system in one indirect tax with 5 different tax rates based on the product or service. It nullified the cascading effect of taxes, where the end consumer had to pay tax on previously paid taxes. It is a multi-stage taxation system where tax is paid at every stage in a sale. This is based on how much value is added to the goods and services at each phase.
Some Advantages of GST
- A lucid tax structure
- A uniform tax system with transparency
- No cascading effect of taxes and hence the drop in the tax burden
- Increase in overall GDP
- Reduced Tax Evasion
A Blow to the Real Estate Developers
The Real estate sector contributes 5% to the Gross Domestic Product of the country. It was the implementation of RERA (Real Estate Regulation and Development Act) in 2016 that organized the real estate sector to a great extent by enforcing transparency in sales and giving protection to homebuyers. The questions and queries regarding the impact of GST on real estate are many. However, the new rules have turned out to be beneficial for homebuyers. The builders are required to pay more taxes if their source of inputs is a non-registered dealer. They are expected to gather 80% of their inputs for construction from registered dealers. Failure in doing so would lead to an increase in the builder’s GST liability. The inputs include cement, paint and other capital products. They also have to give the customers a compulsory concession of 1% or 5% rate.
Removal of Input Tax Credit (ITC)
Input tax credit is used by builders to alleviate their tax liability using the inputs they use to construct their properties. Before GST, builders could get tax credits for capital products such as cement and sand that went into the construction. The new tax rates do not include the Input Tax Credit, which has hiked the expense for builders. In order to avail ITC, builders must have their tax invoices. This is to ensure transparency. The following are the conditions to be met to avail ITC:
- The applicant should produce tax invoice/ purchase invoice/ debit note as proof
- The goods or services should be received but not used for personal use by the applicant.
- The due taxes should be paid to the government by the supplier.
- A justifiable return should be filed by the ITC applicant.
A Boon to Homebuyers
Affordable Housing and Regular Units
Affordable houses are those houses that have a value not exceeding 45 lakhs and an area of 60 sq m and 40 sq m in metros and non-metros respectively. This carpet area definition is a revised version made by the GST council. The current GST rate on affordable houses is 1% with no ITC for real estate builders. This revised rate on affordable houses has encouraged both first-time homebuyers and reluctant homebuyers to go forward and make their purchases. The current GST rate for regular units is 5% with no Input Tax Credit for the real estate developer. The condition is that the builder should procure 80% of his inputs for construction from GST registered dealers. With ITC out of the picture, there is no scope of ambiguity for buyers in terms of taxes. The prices of properties have also been fairly stable since the implementation. This decrease in the tax burden on homebuyers has increased the demand for sales.
The revised GST rates have encouraged youngsters and nuclear families to buy homes near their places of work in cities. Chennai, among all other cities in India, has seen a tremendous growth owing to its IT sector in recent years. The suburbs around the IT parks offer residential properties in convenient locations for those working in the sector. Apart from the availability of employment opportunities, these residential hotspots of Chennai also have excellent infrastructure. Demand for houses in these upcoming areas is going to spiral up with the implementation of GST.
This article is written in support of Adroit Developers, one of the top builders in Chennai. They offer several apartments, townhouses, row houses and penthouses in Chennai’s upcoming residential areas. All their properties have high-end amenities and are easily accessible.