18% itch

Tags: Real Estate

Realtors say if the unified tax rate for real estate were to be pegged at 18 per cent, it would act as a booster dose for the sector

18% itch
The real estate industry remains jittery as the government prepares to implement the good and services tax (GST) from July 1.

Reason? Because the real estate sector feels that unified tax could make or destroy the sector’s fortune, depending on the rate that the government decides.

The government has decided four slabs for GST -- 5, 12, 18 and 28 per cent. If the GST rate for the real estate were to be pegged at 18 per cent, it would be a big boost to the industry.

On the other hand, if the government chooses the 28 per cent slab, it could end up raising the cost of houses, thereby hurting demand.

“A lower GST rate, such as 18 per cent, will offer a huge benefit for the sector as not only will the cost of construction be curtailed, but there will be direct benefit while registering the properties as well,” says Kushagr Ansal, director, Ansal Housing.

Avneesh Sood, director, Eros Group, concurs. “Once GST is implemented, a single tax structure will be followed, which will allow reduction in costs for under-construction units. Developers as well as the buyers will make the most of this, as reduced costs will positively impact sentiment, as well as demand for property. We are just awaiting the tax rate, which gets declared for the realty sector that will be the ultimate decider for the future demand and growth,” Sood said.

More and more realty promoters favour a lower rate regime. Says Dhiraj Jain, Director, Mahagun Group, “There would be a 15-20 per cent higher nationwide realty sector growth over the next 5-7 years if a lower rate regime is followed.”

Urban development minister M Venkaiah Naidu has asserted that implementation of GST will not increase prices of real estate, especially of affordable housing.

If we go by what Naidu has said, the government might settle for 18 per cent GST rate to support the real estate sector.

“GST will not increase prices, especially not for affordable housing. We have already exempted affordable housing from service tax and my ministry is addressing the need to continue this exemption under GST. We have recommended to the ministry of finance to tax the sector at a rate, which is revenue neutral and not at a higher tax rate,” Naidu said at a recent industry event.

Rating agency ICRA too believes 18 to be a good number. “Real estate is likely to attract a GST rate of 18 per cent and its impact on housing prices would be broadly neutral,” it said recently.

The rating agency added: "Services, which would include works contract, are expected to fall under the 18 per cent slab. ICRA expects that at this rate of GST, the impact of the uniform tax regime on residential real estate prices will be broadly neutral, with some variation across states due to the divergences in current taxation practices."

Experts believe that GST would be still be far better than the existing indirect taxation regime for the real estate sector, even if the rate is on the higher side.

As buyers are not liable to pay any indirect tax for the purchase of ready-to-move-in properties, the impact of GST on buyers of resale properties is likely to be very little, analysts said.

In the case of under-construction property transactions, buyers have to pay value-added tax (VAT) and service tax.

While VAT is a state levy and its rate varies from one state to the other, service tax is a central tax applicable at 15 per cent. In the final analysis, current taxes on home purchases remain high.

Developers have to procure a lot of products for use in construction. But they often end up paying tax on the same product more than once, which inflates their project cost.

If GST rate of 18 per cent were to be decided, it would reduce construction cost for developers, who can pass on the same to homebuyers, analysts said.

noor.mohammad@mydigitalfc.com

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