Though the fact that India is turning into an investment destination, but the implementation of GST has certainly increased the final product prices of all commercial and residential products.
Generally, all real estate firms have to take measures concerning with a multiplicity of taxes applicable in various points of the property cycle, which includes indirect taxes such as service tax, value added tax and excise duty, which apply to the procurement of goods and services during construction as well as direct taxes, such as capital wealth tax and gains tax. Stamp duty is also payable on sales of immovable property.
The implementation of the long-awaited GST will bring all indirect taxes under one unified tax structure; leading to a scenario where there will only remain direct taxes, stamp duty and GST for all property-related transactions. This will definitely bring more clarity in the transactions and make the system more efficient, says a report by Colliers Research.
“The implementation of the Goods and Services Tax (GST) will increase final product prices of commercial and residential products, even though it positively enhances India’s attraction as an investment destination. The positive impact will be through the demonstration of the government’s intent for delivering on its commitments of reform aimed at encouraging greater transparency and ease of operation across all sectors. The industrial property and warehousing segment will be the primary beneficiary of adoption of the GST system as operating efficiency is expected to increase. However, during the early stages of implementation, we expect costs to increase due to the negative impact on the supply chain through-put due to teething issues”, said Joe Verghese, Managing Director, Colliers International India.
On the other hand, commercial leasing transactions, which constitutes a major portion of overall commercial property business in India, will see an immediate increase of 3% in occupier commercial leasing costs. The biggest impact will the double whammy of RERA and GST at the same time on the residential sector. Both of this would seriously affect supply and lead to further increase in prices.
Coherent with the recently-announced affordable ‘Housing for All Mission’ (Urban) vision, pure labour contracts for construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works have been excluded for affordable housing projects. Though it looks like that, there will be a neutral impact from cost perspective, the recent revision on tax rate on construction to 18 percent for building for sale to a buyer, wholly or partly, excluding the value of land might lead to increase in prices of on-going residential projects.
In such a case, additional cost burden is probable to be passed on to the end-users. The sale of completed houses in the secondary market should not be impacted by GST, as these transactions will not fall under the ambit of the GST and stamp duty will be payable on these transactions. Though the impact of tax on construction materials is not likely to be intense, reduction in transportation cost will lessen the overall cost burden to an extent. The work contracts will attract around 18% and most of the construction material is under 18 and 28 percent slab, the availability of input tax credit should neutralise the overall impact on cost of construction. However, the input tax credit is limited to 18% and no overflow is allowed while claiming the credits.