Is GST Revenue-neutral in Real Estate?

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Is GST Revenue-neutral in Real Estate? November
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Srishti Chandola
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Many people feel that the Goods and Services Tax
i.e. GST has failed to fulfill the purpose in the
residential market which has actually made the
homes costlier. It was expected to reduce the
burden on tax in the housing market. There,
however, was a moderate expectation, one didn't
expect it to make the residential market costlier
especially for the average home buyers. Some of
the developers advertise that they will be
sharing the GST burden of the buyers. But, the
reality here is that they are only passing the
advantage of the input tax credit to the home
buyers. This clearly shows that the home buyers
are pretty reluctant to enter the residential
market. Many home buyers are now waiting for the
completion of the projects as the
ready-to-move-in apartments do not attract any
GST burden. For the home buyers, however, who
have booked their projects which are under
construction, GST is all of a sudden added to
their budget. For instance, a typical apartment
in Noida would cost somewhat around Rs 60 lakhs.
As the construction cost is around 25 of the
complete project cost, the burden of service tax
under the previous regime would work out to
3.75. In addition to this, the stamp duty of 7
and a few extra thousand rupees in the
registration process will be added. All in all,
the tax burden wouldn't have been more than 11.
But now, under the new GST regime, it would cost
12 of the project. With the similar stamp duty
of 7, the tax burden for home buyers' shoots up
to over 19 from 11 earlier. While the
developers can avail of the input tax credits,
they can certainly pass on to the home buyers,
only some of the developers have till now
announced any such moves while glorifying it for
sharing of GST burden. The developers argue that
calculation of revised sale rate under the GST
regime is a time-consuming and complex task.
Builders have to depend on the contractors, to
know VAT as well as excise duty and have to wait
for the project to complete before you know how
much rate difference is possible in the final
calculation. The rate, moreover, the difference
is not sufficient, to bridge the gap between the
GST at 12 and service tax at 3.75.
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Also, under GST regime, apart from GST, numerous
state and local taxes that are levied on the
sector, in form of stamp duty, labor cess,
registration charges, municipal tax, development
charges, property tax, etc. and there is yet no
means to subsume these under GST. With over 12
GST, registration, stamp duty and other local
taxes, the burden on the sector are with numerous
invisible taxes. If all taxes have been subsumed
under GST, then tax rates have gone up or the
government has compensated to the local
bodies. Advantages under GST regime which might
not reach the home buyers The experts point out
that GST will not completely reduce the overall
taxation it will also serve to portray good
picture of the real estate sector. Bigger tax
slabs are extensively hurting real estate sector.
Cement rates are going up marginally as GST
Council has imposed 28 tax on the product.
Higher taxes on the materials will naturally
transfer the customers. It is also being said
that the prime aim under GST was to keep the
taxes neutral through all the materials procured
for development of the project. This certainly
may be difficult in an ongoing project where the
materials which are used for finishing are in
biggest tax slab which will directly affect the
construction cost. For some months after
implementation of Goods and Services Tax, most of
the manufacturers directly grow their profits, by
not passing the advantages of excise duty from
the previous tax system. Hence, GST has been
beneficial as well as at fault for different home
buyers, completely depending on whether the
developer has provided discounts or not.
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