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GST unlikely to burden home buyers

MUMBAI: Home buyers are unlikely to be burdened with additional tax outgo and cost from the introduction of GST. Real estate has been brought under the GST ambit partially through works contracts that will be levied a 12% tax, which is likely to keep the impact neutral for homebuyers, tax experts said.

The key indirect taxes levied on real estate are excise duty, value added tax and service tax totaling 9-11%, excluding stamp duty which varies being a state levy.

These, barring stamp duty, would be subsumed in GST under the new indirect tax regime that will also allow input tax credit for developers. The sector, however, is awaiting clarity on the abatement rate for the land cost.

“The current effective rate of taxation for real estate is in the range of 9-11%, excluding stamp duty. The proposed rate of GST at 12% should not, therefore, lead to any rise in property prices,” said Pratik Jain, partner and national leader-indirect tax at PwC India.

“Further, entire input credit is also allowed to the sector. This should incentivise the people to come within the tax net and help reduce the cash component in the economy.”

The final impact to buyers of under-construction properties will be the net effect of savings on currently unabsorbed input taxes and the increment in GST rates over the current tax rates.

Currently, input taxes such as excise duty and central sales tax on construction materials that are paid by the project developer are not allowed to be offset against indirect taxes collected from customers.

Under the current practice, other key taxes applicable, such as excise duty, central sales tax and octroi on procurement of input materials, are paid by the developer initially and then passed on to the consumer. However, under the new tax regime, realty developers would be able to get credit for input taxes paid, which would help lower the cost, experts said.

“This will be anti-inflationary and won’t lead to any increase in prices for homebuyers and there won’t be any additional burden on customers,” said Rajeev Talwar, chairman of realty developers’ body National Real Estate Development Council (NAREDCO).

While the works contract between the realty developer and service provider has been brought under the ambit of GST, it remains to be seen whether components such as parking and preferred location charges will also be considered to levy GST.

Source : ETRealty

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