The Goods and Services Tax (GST) bill was cleared by the Rajya Sabha on August 3, Wednesday, after much discussion on the issue. It is touted as India’s biggest tax reform and is driven by the principle of ‘one nation, one tax’, economically unifying the country. Though the actual rates of GST have not yet been announced, real estate market players are optimistic about its impact on the real estate industry.
Real estate is the second largest employment generator in the country after the Information Technology sector. It contributes to 7.8% of India’s GDP. The GST bill will directly impact realty sector majorly in terms of the tax outflow dynamics for builders as well as homebuyers. The industry will gain via the slated improvements in ancillary industries like cement, home loan providers, IT sector, steel industry, etc. A more rationalised taxation will have long-term positive impact on the property market.
As of now, the GST bill has been passed by Rajya Sabha after a majority of states approved the amendment. After this, the parliament will have to give it a final clearance; federal and state governments will together fix a rate for the same.
A clear prediction regarding its impact on real estate cannot be made before a rate is announced. The positive impacts are predicted by assuming that the rate will be lower than the cumulative tax builders and buyers are paying as of now. However, if it is higher, it would have a subduing effect as the prices for under-construction properties will go up. The rates will have low or no impact on the ready-to-move flats as most of the taxes on them have already been paid.
A lower rate for the GST will be very uplifting for the real estate sector. There will be a correction in the prices of cement, steel and other allied product industry. When the builders will be able to buy raw material at lesser cost, the final cost of projects will be less. This will lead to an increase in demand from the homebuyers. However, the stamp duty payable on properties is not subsumed in the GST bill which can turn out to be a restraint.
Overall, a good impact is being speculated on the basis of a lower rate assumption. The actual effects can be monitored only after the rates are announced.
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