The reality of GST

The biggest gain for home buyers will be the increased transparency and accountability of developers, says Sonal Sachdev

T he era of Goods & Services Tax is finally expected to kick-off from July 1. And as with all segments of the economy, the realty sector too will not remain unaffected.

What will be the extent of impact, only time will tell, but here are a few pointers to how things might pan out.

Good for taxpayers

The alignment of various taxes under one tax system will make things easier for developers. Credit for taxes paid on various inputs — materials and services — will now be easier to track and set-off.

This will not only simplify accounting, but bring in transparency and remove the incidence of double taxation in many cases.

All this should help in lowering costs for the developers, which should logically get passed on in some way to home buyers.

Affordable homes

The exemption accorded to affordable housing projects from service tax is likely to be extended under the GST regime. So, no tax will be levied on such houses even after GST is rolled out.

This is even more likely in light of Prime Minister Narendra Modi’s increased focus on affordable housing through Pradhan Mantri Awas Yojana, which has targeted Housing for All by 2022.

Uncertainty on rates

The only area of slight consternation is the GST rate that will be assigned for real estate. Against the present service tax rate of 15%, the likely GST rates are 12% and 18%. There is an expectation that the rate will most likely be set at 18%, which will translate into higher tax payouts for homes in under-construction projects.

While this can push up purchase cost for home buyers, there is an expectation that gains accruing to developers from a transition to the new regime will likely set this off.

But the biggest gain for home buyers will be the increased transparency and accountability of developers, as regulators will be able to far more easily track transactions and expenses. The drive against black money, in conjunction with GST and the roll-out of the new sector regulatory regime will make investing in real estate less risky and obtaining finance for transactions less cumbersome.

So, the tax tidings are good for homing in.

Former Editor, Outlook Business and Executive Editor, NDTV Profit, the writer is a personal finance expert. Mail him at propertyplus @thehindu.co.in