Is GST Going to be a Game Changer for Real Estate and property industry in India

The passage of GST bill by the Rajya Sabha on 03 Aug 16 is being heralded as the single most important reform after independence by the financial pundits. Unfortunately, as everything in our country takes time, the GST bill is no exception. It has taken 30 years, 9 PMs and 12 FMs to achieve the target. When India had started its GST journey only 34 countries had GST implemented today the figure is 165, the figures say it all. But as the hindi saying goes “Daer aye Durust aye”, all’s well that ends well. The bill is being touted as the biggest game changer with the GDP growth rate predicted to go up by 1 to 2%, which would be huge if true.

There is no doubt that GST is going to have an overall positive impact on the Indian economy and everybody stands to gain. The speculations are on as to to what will become cheaper or costlier, not getting into this discussion as it is too early to predict; a few things are for sure; it is going to set in transparency; simplify taxation; set in automation; tax evaders are going to run into difficult times; the country is going to be seen as a unified entity as far as business is concerned and resolve the entire taxation muck in our country.

The real estate property sector in India is going to be one of the most significant beneficiaries.  let’s look at the impact of GST on the real estate industry in India.

Impact of GST on Real Estate Industry

Present a real estate developer pays a set of independent taxes at different rates across states on raw material, construction etc. These include VAT, CST, excise duty, import duty, service tax to name a few. All this stands to get resolved, he would now end up paying one tax at the time of construction which would be the same across all states. This reform is going to bring down the construction costs by a substantial margin. The property rates in India would move towards stabilisation across cities and states.

Impact of GST on Individual Property Investors

Today when an individual investor goes to buy any property he ends up paying VAT and service tax and the tax rates vary across states. This stands to change with GST. The end user will now pay one tax while purchasing property in India and this would be common across the board. However, the stamp duty part would remain outside the GST gambit. A note of caution, certain states have exempted real estate from VAT, depending on the GST rates, the overall property costs may go up in certain states due to a common taxation rate.

Impact of GST on Commercial Property in India

Commercial property in India becomes a separate entity when we look at taxation and GST is going to have a far reaching positive impact on the commercial real estate. Today under the cenvat credit a developer is not allowed to set off credit of construction works against the service tax he pays towards rentals/lease. GST will reduce taxation, as developers will now be able to get input credit, paid for construction against the GST charged on lease rentals.

Whether implementation of GST is going to help in stabilizing or reduce the real estate prices in India will only be known once the taxation rates are finalized and the nitty-gritties are worked out; however, one thing is very clear that it is going to have a very positive impact on the ease of doing business and set in transparency in the real estate in India, which in itself would be a huge game changer.