GST to propagate the much-needed changes in real estate sector

 Implementation of the Goods and Services Tax (GST) will end the wait for one of the most revolutionary tax-related reforms in the real estate sector. While everyone is positive about the GST impact on the overall economy, only time will tell the outcomes of its implementation.  It is deemed as a robust move to merge most of the existing taxes into a single system of taxation.

Purging the inconsistent and cascading taxation structures, GST will streamline the entire taxation process, making the country one unified common market. Without a doubt, it will have a major impact on the economic prospects of our country. Besides propagating transparency, the GST impact on real estate will alleviate the cost of property and result in increased demand. The cost of houses − if it is at a rate below the current applicable taxes that are levied by the central and state governments − will be reduced significantly. However, there is a lot of speculation about the tax rate at which it will be applicable to the real estate and construction industry. Also, differences in the taxation policies and practices across states will lead to discrepancies in the residential real estate prices.

Being a uniform indirect tax covering all the goods and services, GST will increase the tax collection by making it easier for retailers to comply and also moderate overall taxation levels. As a matter of fact, almost all the sectors of economy will be affected due to GST impact. Nomura, a leading research house, stated: “While corporates would pass on the direct benefits of GST (like a lower tax rate), they would aim to retain partly the indirect benefits from the saving in logistics costs, streamlining of business processes and the seamless flow of input credits.”

Talking about the GST impact on real estate and overall economy, Sunil Singhania, CIO – Equity Investment, Reliance Mutual Fund said, “GST is a game changing reform that is widely awaited. It has the potential of adding almost 100 basis points to the GDP growth. Though the near term will see some challenges of implementation, it is one reform that will bring efficiency in the economy and widen the tax base.”

Motilal Oswal, India’s leading online share trading company believes, “The impact of GST has been a mixed bag for the Capital Goods and the Consumer sector. While the Capital Goods sector would benefit from a lower tax rate on contracts there would be higher tax incidence on cables and transformers. A few segments in the consumer sector would see higher effective taxes and need to take price hikes to offset cost pressures from increased taxes.”

As an aftermath of GST’s implementation, the registered real estate developers would be exempted to pay the tax credit against the total purchases. Also, the high rate of stamp duties involved in property-purchasing formalities, such as booking and development agreements would be minimized.

Certainly, the potential effectiveness of GST secures great hope for sustainable development in the realty segment.

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