The Goods and Services Tax (GST) is a detailed, multi-level, destination-based tax that is scheduled to be imposed on every value addition. The multi-level is related to the processes an item undergoes, from manufacture or production to the end sale. Purchase of raw materials comes first. The second stage includes production or manufacturing, which is followed by the warehousing of materials. Second-to-last comes selling the product to retailers. Finally, at the end level, the retailer sells you, the consumer, the product, which leads to completion of its lifecycle. A GST will be levied on each of these levels, which is why its description includes the world ‘multi-level’.
The word ‘destination-based’ is a little simpler to understand. A GST will be imposed on all exchanges taking place during the manufacturing chain. In the past, when a product was being manufactured, the centre would impose an excise duty on the manufacture, and then the state would add a value-added tax when the item was sold to the next phase in the cycle. This entire process would repeat itself at the next point of exchange. Now, instead of all those, a GST will be imposed at every level.
However, the most significant impact of the GST is likely to be on the real estate sector, thanks to a number of substantial benefits.
Also Read: Impact of GST on Home Loan
The Influence of GST On Real Estate
- A number of industry experts predict minimal impact on property and home prices in the short term, but admit that the simplified tax structure that GST brings will benefit general perception of the sector, eventually benefitting stakeholders of the residential real estate.
- Currently, the development and sale of property is attracting high amounts of both state and central taxes. Especially when it comes to purchase of an under-construction property, the number of taxes imposed is too varied and complicated. The scenario is slightly better when purchasing a completed asset, thanks to the exemption on VAT and service tax, but it still includes stamp duty and registration charges. Additionally, since these two are state levies and hence differ according to each individual state, the amount of confusion for buyers is too high.
- This is where the benefit of GST comes in. Thanks to the new tax, all properties undergoing construction will be charged at 12% on property value (not including stamp duty and registration charges). However, this will not be enforced on finished projects, since no indirect taxes are applicable in their sale. Transparency in taxes is the most beneficial aspect of GST. Also, an added benefit is that any developer will be able to avail input tax credit after sale against taxes paid by the property purchaser.
- For developers, the opportunity to claim input tax credit will definitely improve their profit margins.
- Although GST will be counter-productive for cooperative housing societies due to higher maintenance charges, property taxes, utility bills, and more expensive repair work, the government’s inclusion of an anti-profiteering clause which makes passing forward benefits of tax reduction to customers a compulsion, will still make it a beneficial tax bill for most.