One of the biggest investments you can make in India is in real estate. Home prices in India are very high in comparison to the average income of most Indians.
Recently, the government of India introduced a landmark tax reform called as GST or Goods and Services Tax. This is expected to play a big role in the property market, whether you want to buy or sell your real estate in India online.
In the past, every state in India – all 26 of them – had their own taxes. They charged their own value-added tax and service tax. Every city charged different property tax rates. How is GST expected to change the property market?
What GST is expected to do is introduce changes such as the input tax credit. So at every stage of delivery of a service, the credit of the input taxes can be availed of at each progressive stage of the transaction. In other words, you won’t have to pay a tax on tax – there is no reason to pay a double tax on anything, as was the norm in the past.
GST is definitely good news for those who want to buy property in India fast. It has already boosted sentiments in the residential real estate sector. There are a few short-term challenges for developers in when making the transition to the new regime, but in the long-term there are many advantages to be had.
Anuj Puri, chairman of ANAROCK Property Consultants says, "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 residential real estate sector, as the perception of the sector will improve on the back of a simplified tax structure."
The domestic brokerage Edelweiss Securities added in a report, "We expect GST to be positive for the sector, with property prices likely to soften by 1-3 per cent. Impact could vary depending on extent of input credit transferred, cost structure and property completion status."
Another expert, Samantak Das of Knight Frank India explains, “The impact of GST on real estate would be primarily tax neutral; the Finance Ministry has made it very clear that there should be no additional tax burden on consumers. Developers who did not get the benefit of ITC (Input Tax Credit) in the pre-GST era will be able to avail the same post GST and the ITC that will be available to developers will be extremely tax efficient. As per GST, ITC has to be fully passed on to the consumers. With GST at 12 per cent and the ITC, the net impact should be a tax neutral environment for the consumers,”
Property developers will definitely benefit from GST as they won’t have to pay multiple taxes at different stages to different agencies. Now with this uniform tax system, they only have to pay one single tax. Naturally, the benefits will be passed on to those who want to buy property in India.
Mr Puri of ANAROCK Property Consultants adds, "GST will eliminate all the other taxes, and the benefit of being able to claim input tax credit can also improve developers' profit margins. Developers too will find the GST regime much simpler to work with, with the benefit of input tax credit being an added advantage."