How Will GST Impact Real Estate?
The gross domestic product measures national income and output for a given country’s economy. Real estate agriculture is the second largest employer after agriculture and will grow at 30 percent over the next decade and is expected to touch US$180 billion by 2020. The real estate sector is about 5% of India’s gross domestic product and is still growing at peak.
2016 wasn’t a very good year for the real estate sector, demonetization being a cherry on the top as real estate market was well known for black money transactions. In terms of macroeconomic condition, the sector faces several issues, one of them being the management of multiple indirect tax levies like service tax, VAT, stamp duty and registration fees.
With new announcements in 2017 and implementation of GST for real estate, this year is looking forward to having a brighter horizon for the sector. It is known that GST (Goods and service tax) will impact real estate.
Let’s understand how!
GST includes multiple indirect taxes and will simplify tax compliance and minimize the scope for double taxation. It is going to be a good news for homebuyers as Finance minister Mr Arun Jaitley said GST will be kept as low as possible after the Rajya sabha passed the bill.
The real estate sector will attract GST rate of 18 per cent and due to diverse taxation policies there is bound to be some variation but the impact of this tax on residential real estate prices will be neutral.
There is an opinion from builders and tax consultants that the implementation of GST for real estate will make it easy for property buyers to have ownership because of reduced rate. It will also help bring transparency in buying process and decrease unscrupulous transactions. If GST is lower than all the tax rates, developers are hoping to see a surge in sales.
Mr Ankur Dhawan, a chief business officer has also said that, there will be a substantial boost to the economy as GST is expected to add about 2 percent to India’s gross domestic product (GDP) and there will be more demand for real estate if the economy does well.
GST Regime For Real Estate Sector
GST law will increase the margin in the hands of a contractor by removing VAT and service taxes. Real estate sector enjoys a lot of benefits from facilities in SEZ and GST will help in filling the gaps existing under the supply chain management process. GST may bring a lot of relief to the real estate sector.
As one of the important sectors of the Indian economy is real estate, and it plays a vital role in generating employment in India. It contributes 5-6% of GDP and it stimulates demand for more than 250 ancillary industries. It has growth of about 22% in its private equity investments from 2015 to 2016. There was a 9% increase in investment for residential properties in the 3rd quarter of 2016.
Whatever will be the rate under GST, still there is going to be a substantial benefit from it because of transparency and accountability as well as many taxes being absorbed into one carrying a benefit to the contractors.