Planning to buy a house? GST will save you from paying various state taxes

  • Timsy Jaipuria, Hindustan Times, New Delhi
  • Updated: Aug 04, 2016 23:06 IST
The service charge, however, levied on the purchase of the property is likely to push costs up a bit. (HT File)

If you’re looking to buy a house in the coming years, the implementation of the goods and service tax (GST) will have a dual impact on you – it will remove the cascading, double taxation in the system, but will instead levy a higher service tax.

The proposed uniform tax regime, experts say, will rescue end consumers from the hassle of paying various state taxes at different levels, thus doing away with the double taxation impact.

However, on the other hand, the service charge levied on the purchase of the property is likely to push costs up a bit – today, one pays 15% – and the proposed rates are likely to be more on services.

“GST will increase the overall cost of under construction property for buyers if the rate is higher than current applicable service tax rate of 15%. For states where VAT is not applicable till now, state GST will be charged. If the rate is relatively lower than 15%, GST can result in price neutral or lower price for consumer,” said Ankur Dhawan, chief business officer of PropTiger, a real estate portal.

But since a lot of the indirect taxes are paid by developers, a likely reduction makes a straight case for them to pass on the benefit to consumers.

“The goods and services tax is likely to be a game changer for the real estate industry… (it) is currently facing issues of multiple taxation, which amounts to over 25% in indirect taxes. With the uniform tax, developers will have free input credits on GST paid for services and goods purchased by them, which will reduce cost and can be passed as reduction to buyers,” said Brotin Banerjee, managing director and chief executive officer, Tata Housing.

Explaining further, Anuj Puri chairman and country head, JLL India said, “At present, in the case of buying an under-construction flat, one needs to pay both service tax (4.5%) and VAT (varies from state to state). Additional indirect taxes are paid by the developer during procurement, which get built into the cost of an apartment. Stamp duty (varies from state to state), which is payable on property transfers, is not going to be subsumed into the GST.”

The direct impact of GST on real estate, in terms of tax outflow for developers and consumers, will depend on whether the final GST rate is more or less than the rate paid currently.

“Apart from the significant reduction in tax management expenses due to a single unified tax, the compliance costs will go down too,” added Puri.

Whether the home purchase becomes costlier or cheaper will finally depend on the rates in the fine print of the bill once the GST Council clears it. Service rates, which are pegged to be higher than 15%, are likely to pinch your pocket, but, given that developers input costs will reduce, it makes for a clear case of price reduction. And not to forget, the hassle of paying different duties and taxes at various regulatory offices will be much more manageable.

In all, the GST is a benefit for home buyers, at least in spirit.

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