GST implementation makes citizens, developers sceptical about property rate trends

Rujuta Parekh
Thursday, 29 June 2017

Speaking on RERA, Paranjape said that while GST will not lead to price escalation immediately, RERA will certainly cause the prices to rise. The additional costs and liabilities under RERA will lead to a substantial drop in supply in the real estate market. This trend will be witnessed for two to three years, he explained.

Pune: Developers from the city continue to remain uncertain about whether the cost of real estate will see an upward or downward revision following the rollout of the Goods and Services Tax (GST) from July 1. Developers are banking on the availability of input tax credit from vendors and contractors to calculate the benefits, which can be passed on to the end consumer.

The GST Council has announced that under-construction real estate projects will attract a tax of 12 per cent under the new tax regime, a 6.5 per cent hike over the current tax structure.

President of CREDAI, Pune Metro, Shrikant Paranjape clarified that developers from the city want to pass on maximum benefits to the consumers but there is no uniform figure on the quantum of benefits that can be passed on.

“The tax impact on every project will differ, as it will on every unit depending on the land value, stage of the project and the cost of construction. Based on the tax credit that is available to us, we can pass on the benefits to the consumer. The benefits may vary from unit to unit and project to project,” he said.

Partner, Tax and Regulatory Services at Ernst and Young, Sagar Shah, said that GST impact on real estate will fall under two heads, those who have already booked the flats and those who will book after July 1.

“The tax benefits that will be passed on to consumers after GST are subjective. In case a consumer has already booked a flat at the current tax rate, he/she will have to pay the rest of the amount with 12 per cent GST. It is these transition cases that will be a challenge and too many benefits may not be passed on to the consumer. If the project is nearing completion, builders will not be able to obtain too much tax credit due to which the benefits may be minimal or not passed on,” he explained.  

Shah said that in case of new projects, higher the cost of construction, higher the benefits as the developers will be eligible for greater tax credit. Explaining how the benefits will be passed on, Paranjape said,

“The quantum of benefits will depend on the balance cost of construction of a project. Under the Real Estate Regulatory Act, it is necessary to mention the estimated cost of construction and balance cost of construction in case of ongoing projects. Based on the balance cost of construction, we can compute the tax credit we are eligible for and then tell the consumer what can be passed on.” He said an upward revision may not be seen in the coming months as developers are trying to gauge tax credit available. 

“We can get tax credit from cement, bricks, sub-contractors, etc. Taxes are different on different equipment at input and we need to classify the equipment to calculate how much credit a developer is eligible to take and then calculate the benefits we can pass on. If the vendors do not comply to GST, we will be unable to pass on the benefits to the end consumer. Over the next few months, if the vendors do not pass on the tax credit by filing returns, then the prices may rise,” he explained. 
Paranjape said that in this position, ensuring tax compliance by vendors is going to be a challenge for builders as many vendors and contractors for real estate are from the unorganised sector. “If the tax credit is not available to us, there could be an adverse impact on the cost,” he explained. 

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