Macro Economy

Will short-term pain result in a long-term gain for real estate?

Singh Garima | | Updated on: Dec 06, 2021

While GST gives the sector much-needed transparency, issues like input tax credit, dual tax slab have to be ironed out

A year after the GST rollout, experts in the real estate industry believe the tax system will benefit the sector in the long run, brining in much-needed transparency, but there are some immediate challenges.

“Hiccups in the deployment of supporting IT infrastructure and confusion about input tax credit (ITC) are some of the challenges,” said Anuj Puri, Chairman, Anarock Property Consultants.

“The lack of clarity on the anti-profiteering clause, incorporated to pass on the benefits of ITC to end-users, is a particularly prominent pain point with GST,” he added.

“In the pre-GST regime, the taxation in terms of VAT and service tax was within 6 per cent of property cost,” said Pradeep Aggarwal, Chairman and co-founder, Signature Global India Pvt Ltd. “Under GST, it is pegged at 12 per cent for standard residential property under construction and 8 per cent for affordable housing.”

The issues will be ironed out over time, feel some. “The government is watching the industry in close circuit so that the spirit of GST won’t be dampened,” said Anand Gupta, former general secretary, Builders’ Association of India.

Affordable homes

Initially, the GST rates for the real estate sector were 12 per cent and 18 per cent. These were later revised to 8 per cent for affordable housing and 12 per cent for the rest. The move is seen to have benefited buyers of affordable homes in a substantial way.

However, Niranjan Hiranandani, President, National Real Estate Development Council (Naredco), said: “This has created something which is not a level playing field. It is in the interests of home buyers and the real estate industry to have a common rate of 6 per cent.”

A single tax slab would bring down property prices across India, it is felt. “We have, in fact, not seen such a significant impact on the ground. If the stamp duty and registration fees would be subsumed under GST, we would definitely see the overall cost of property purchase come down,” said Anarock’s Puri.

Time needed

Industry experts believe the single-tax scheme is still in its nascent stage and needs time to evolve.

“As the realty sector becomes more streamlined on the back of GST and other landmark reforms such as RERA, investor and consumer sentiments will become more positive and further strengthen the entire system in the future,” said Puri.

Published on July 01, 2018
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