CA. Sanjay Goyal

GST and Its Impact on Real Estate Sector

The Goods and Services Tax (GST) is beyond doubt the most revolutionary tax-related reform to be seen in India in several decades, since it will eliminate the conflicting and cascading taxation structures which have confounded several industries over the past few decades. It will most certainly have a profound effect on India’s economic prospects. Everyone if looking forward to the implementation of the Goods and Service Tax (GST). The 12% GST rate is welcomed by Industry. RERA is moving in the right direction to ensure transparency in the realty sector. GST and RERA collectively are expected to free homebuyers and investors from a lot of hassle. Above all, it will free them from the double taxation impact and thus, GST is being welcomed by the industry as well as other stakeholders. After RERA, the next thing everybody is looking forward to is the Goods and Services Tax which is Set to get implemented on 1st July 2017, GST will have an impact on the cost of various commodities.

What is more important is to see how the Builders and developers shall pass on the benefit of the Input Credit received under the GST regime. Its is feared that some builders may just charge 12% to the buyers and fail to pass on the benefit of Input Credit that they are receiving on Input material for the under-construction projects as on the proposed date of Implementation of GST, i.e 01st July, 2017.

Let us consider some important points –

GST Impact on Developer/Builders :

  1. Under GST, a developer can claim maximum credit and he would be paying for the finished product.
  2. The developer will need to pay only differential tax liability to the Government body. The cash component will cut down as products will have to be sourced from registered vendors to get input tax credits.
  3. GST is also expected to boost foreign investment and benefit the NRI community. With the availability of the seamless and all-inclusive channel, transacting in Real Estate will become easier for them.
  4. GST rates will also reduce the cost of production for the builders. Since the cost will be low, builders will be able to pass a part of the benefit to the buyers. The completion of housing project depends on a lot of allied industries like cement, steel, etc. A lowered GST rate of 18 per cent will offer a huge benefit in reducing the overall construction cost.
  5. While it is difficult to comment exactly on which type of projects will have more impact, as GST may vary for different project type. To avoid any confusion, the developers should study the GST impact analysis and understand the GST system and implications.
  6. Many experts also feel that the entire chain of real estate transactions, including sale of land should be bought under the GST.

GST Impact on home prices:

  1. While the Real estate sector was heavily taxed earlier, the single 12% GST rate is welcomed. Industry experts feel that the actual tax impact under GST would match, or be lower than the existing multiple indirect taxes on the sector.
  2. We are still waiting for more clarity on the applicability or continued exemption for Affordable Housing under the GST.
  3. If the profit margins of the developers get impacted, the profit margins for the buyer will increase. As the taxes will be low, the prices will automatically come down. Moreover, with GST all the other taxes, which buyers pay indirectly to the developers, will also be eliminated.
  4. Different segments will be impacted differently. Just for an example, for the luxury segment, since the taxes are kept higher, so an individual may have to pay a higher tax because of the higher-costing product used. At the same time, in such premium segments, there are a number of factors that care of it. So overall, it looks like there will be a fair play and impact on all the governing forces.
  5. With all the taxes coming down into a single consolidated tax, the double taxation practice will abolish. It will have a cascading effect on the inflated prices for end users.

A single indirect tax which covers all goods and services will, in the long run, increase tax collection by making it easier for retailers and several other businesses to comply and also moderate overall taxation levels. That said, it should be remembered that the favourable effects of this new taxation regime will become evident only within 2-3 years of its implementation.
RERA has already set the ball rolling and developers are running back and forth to understand the overall implications of the Act. The same will be the case with GST. We need to understand that India has been looking for such regulations and statutory environment for quite a long time now. The earlier we embrace these regulations, the better it will be. Everyone sooner or later has to get accustomed to the new ways of working, both in real estate and taxation. As we prepare for GST and how it will work, the reduction of multiple indirect taxes and minimization of the scope for double taxation is a reason for home buyers to cheer!!


CA. Sanjay Goyal (Chartered Accountant), Partner- M/s Anand Sanjay & Associates, SIliguri

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