Bottom Line: Whether or not ready to move apartments will attract premiums more than the GST liability, a perception has gained ground that GST means ‘Gone Service Tax’ for ready apartments. Ravi Sinha evaluates.
If one has to ask a homebuyer about his dream wish list, one would ask for few things like getting what one can see, carpet area that could be measured, no hidden cost and, last but not the least, no extra tax. Now it seems these fancy wishes would be true with the Goods & Services Tax (GST) if only one would go for a ready to move property.
Rachna Malhotra, a homebuyer in Goregaon, is confused with the Goods and Service Tax (GST) on property. The initial announcement of 12% GST on property confused her as she thought it straightaway leads to a hike from the existing lower Service Tax. However, her enquiry with some of the tax consultants made her understand that GST is not applicable on the ready to move in apartments and hence it makes sense to buy a ready to move apartment now.
“GST for me is like ‘Gone Service Tax’ where I will not have to pay it if I buy a ready property. Moreover, even if a property is 80% complete it is excluded from the GST. The property market will now have more transaction with the ready to move apartments,” feels Rachna.
Experts point out that there are many advantages for homebuyers with the GST. The cost of construction is expected to come down and since the developers are getting input credit the buyers who will buy after the OC would have freedom from the additional taxes that are part of the deal in the present market.
GST Saving
Ready to move apartment will have no GST
Projects with 80% completion will have no GST
With developers getting input credit the cost of construction expected to lower down and hence no burden for post possession buyers
No hidden taxation for post OC homebuyer
A CRISIL report points out that at present, a developer pays excise tax and VAT on inputs like cement and steel at 27.7% and 18.1% respectively, which vary from state to state. Now, cement and steel will be taxed at 28% and 18% respectively under GST.
Then there are other inputs like paints and white goods are going to be taxed at 28%. But the final product that is a housing unit will be taxed at 12%, with the allowance of credit against taxes paid on inputs. But as 12% tax will be levied on entire cost including the land, the amount will be sufficient enough to provide for the input credit for the developers. The buyer, if buying a ready to move apartment is thus saved from the tax burden.
Naushad Panjwani, Managing Partner with Investment Banking firm Mandarus partners points out that if OC (Occupation Certificate) is received then no GST is applicable. He feels the developers cost will naturally come down with the input credit but a lot of clarity is still needed.
“The small suppliers to builders will vanish as they are not required to register for GST if turnover under 75,000. In such cases since the builder is not getting any advantage and would have be careful in accounting. So, he may prefer to buy from registered dealer. So small vendors will be impacted by loss of business,” says Panjwani.
Nikhil Hawelia, Managing Director of Hawelia Group, point out that already the market is evaluating the benefits of build & sell model. According to him, in the new taxation structure and other regulatory framework, it makes more sense for both the buyer as well as the builder to hit the market with ready apartments.
“A lot of buyers in under construction projects are also making enquiries with the builders as to whether they can pre-pone their balance payment. This is to save from the 12% GST that would be applicable from the next quarter. Of course, the buyers would now prefer to go for a deal where they can save this GST completely,” says Hawelia.
The only catch here is that the GST impact on home loans, even though a miniscule amount, has to be factored in. This is because the GST is applicable on financial services, at 18%. Hence, loan processing charges are likely to increase in the GST regime. Similar to the current regime, such GST charged always remains a cost in the hands of the buyer. However, in the affordable housing this additional 18% cost of the loan processing in the range of 1% would practically be negligible.
