GST is bound to have an impact on each and every sector either directly or indirectly. The full implication will be evident over time, after implementation of the new system.
Presently, a developer incurs different expenses during the construction phase of a project. This involves different kinds of taxes VAT, CST, customs duty, service tax, excise dut, etc. GST will entail credit against taxes already paid on inputs. GST will bring relief to the real estate sector by eliminating the cascading impact of indirect taxes.
This new tax system will bring a lot of transparency to the real estate sector. Under the GST system, the parties will get credit for the VAT and service tax charged by different contractors, and excise duty, entry tax, octroi etc paid on inputs. They will be required to pay tax only on the value additions. This, in turn, is expected to lower the overall tax burden.
Construction of a building will benefit from the rates declared for cement, bricks and iron under the GST.Now, many of the construction materials are under the 18 and 28 percent slabs. Cement and prefabricated structural components for construction or civil engineering will be taxed at the rate of 28 percent under the GST. This is higher than the current average rate of tax of around 25 percent, but many of the additional taxes charged over the average rate will be subsumed by the GST.
Iron rods, steel and steel products used in the construction of buildings are mostly in the 18 percent which is similar to the current average rate of 19.50 percent. However, as the input tax credit is available on products used for construction, the overall tax incidence will be neutralised.This input tax credit is available to a developer if the sale is executed prior to obtaining the completion certificate or prior to first occupancy.
IMPACT ON UNDER-CONSTRUCTION PROJECTS
The projects under construction are covered by the GST system through the works contracts. In this case, GST will apply to the materials that a developer procures to build a residential project.Hence, it will have a direct impact on the overall cost of construction.
The GST rate for underconstruction property has been set at 12 percent. Input tax credits will be available to developers here too.
NO IMPACT ON COMPLETED HOME
Buyers of completed residential projects will not be affected by GST, as they have already paid the statutory charges such as stamp duty and registration charge on the transaction. In case of a ready-to-occupy property, if the occupancy certificate for the project has been received, GST will not be applicable.
IMPACT ON LET-OUT COMMERCIAL SPACES
GST will be levied at 18 percent on commercial property that is rented out. Unlike under the service tax regime, the threshold limit for applicability of GST has been increased from Rs 10 lakhs to Rs 20 lakhs. So, many commercial property owners who were covered under the service tax regime will go out of the indirect tax net under the GST.