Real estate sector is one of the most pivotal sector of the Indian economy. The prominence of real estate sector is comprehended with its average 5-6% GDP contribution and rousing demand for more than 250 ancillary trades. The Goods and Services Tax (GST) brings a lot of relief to the real estate sector. Supply chain mechanism in real estate sector is refurbished post GST.
GST Regime for Real Estate Sector
GST brings a lot of transparency in the real estate sector and minimize crooked transactions. GST law increases the margin in the hands of contractor. GST coupled with Real Estate Regulatory Act that has come into effect on May 1st, 2017, would ensure efficiency in the real estate sector. 12% tax rate under GST regime looks favorable to the industry.
In some cases, even input credit will be more than the GST levied on the furnished product. But a developer can claim a maximum credit to the extent of the GST he would be paying on the finished product. GST leads to input cost devaluation for construction trade as credit of taxes paid on various inputs used in the construction activities are available.
GST is also likely to boost foreign investment and benefit the Non-Resident Indian (NRI) community for investment in real estate because of a seamless comprehensive channel available. The generality of taxation is possibly the most positive GST facet and it will promise well for foreign investments. It will also raise the confidence of the NRI market to invest in Indian real estate.
Real estate sector enjoys a lot of benefits from facilities in special economic zone (SEZ) and same are carried forward in GST. GST will help in free transport of goods without stopping at the state borders for long hours for payments of state tax or entry tax from one state to another state. This will reduce in paperwork to a great extent as well.
Read More: GST Impact on Jobs
Residential and Commercial Segment
The GST impact differs as per the project type and construction methods because under construction flats are taxable under GST and input tax credits on sales of under construction flats are available to set off. It is hard to note precisely on which type of projects will have more impact and which type of project will have more benefits.
As per GST ITC Rules, input taxes paid on various components used for the construction activities will be available to offset against the tax liability i.e. GST collected from the buyers against the sale of under construction flats are subjected to definite constraint. The contractor needs to pay only differential tax liability to the Government Body. The contractor has to collect taxes from customers from time to time and he is eligible to take input tax credit on goods as well as services used for construction activities. GST cutbacks cash element in construction as products have to be sourced from registered vendors in order to get input tax credits.
GST Rate on Real Estate
Land and building construction benefits from the declared rates for bricks, cement, and iron under GST. The building bricks consumed for the construction is taxed under GST at the rate of 28%. The rate of ceramic building bricks is kept under 5%. Cement is taxed at the rate of 28% under GST. Iron rods and pillars used in the construction of buildings is charged at the rate of 18%.
GST cuts down the percentage of each real estate project expenditure that goes unrecorded on the books because of cloud storing of invoicing. Real estate sector is benefited with the new tax law having a positive effect on all ancillary industries. There is a substantial benefit from GST as it brings a lot of required transparency and accountability.