How does GST affect the real estate sector?

Time to read: 3 mins | February 27, 2017

The Goods & Service Tax that was recently passed in the Rajya Sabha and the passing of this bill has raised several queries, as people aren’t sure about the impact of GST on various industries, especially the real estate sector.

Here are some basic points that you should know about the relation between GST and home loans.

Prior to the implementation of GST, builders and home-owners had to pay heavy taxes, like service tax, vat, entry tax, customs duty, excise duty and many other charges. Builders retrieve the amount they pay as taxes from the home-owners by incorporating these charges in the purchase price. With GST coming into force, now both the parties (builders and owners) have to pay only one single tax. There is a better understanding among home owners about how the system operates now, and thanks to GST, the real estate sector has become more transparent for the layman. According to experts, around 16 diverse and complicated taxes will be combined into one simple tax in the form of GST.

One of the objectives of GST is to bring down the cost of housing projects all over the country. The different taxes mentioned in the above point contribute to around 22- 25% of the cost of the home, which is a huge sum. GST aims to abolish multiple taxes and bring a structure to them. The reduction is home prices will also reduce the home loans making it easier to apply for one. Even though the bill aims to reduce multiple taxes, there could be a possibility of increase financial costs such as loan processing fees, debit/ credit charges and insurance premiums etc.., which in turn may add to the final purchase price.

However, the flipside to GST is that all of the above-mentioned benefits would work only if the consolidated rate of GST is lower than the sum of all individual taxes put together. The implementation of GST may lower transit costs, which can generate higher utilisation allowing builders to capitalise on lower costs and create affordable housing. Although real estate experts are of the opinion that this might take a few more years to materialise. The implementation of the bill will only come into effect once the bill receives the presidential nod, which will make an enactment.