The Divergence of Expectations and Impact of GST on Real Estate Sector in India

Abstract

The real estate sector in India contributes 6-8 % to India's GDP and stimulates the demand in nearly 250 ancillary industries like steel, cement, paint etc.. This paper will analyse the ground realities of expectations people had from GST. In the pre-GST regime , the developer and the buyer had to deal with multiple taxes such as VAT, Octroi, Service Tax etc. and the different schemes for payment and different valuations added up to the complexities in compliance mechanism. There has been a radical change after introduction of GST as now not only developers can claim ITC but there has been a uniform levy system @ 12% with ITC benefits for commercial projects, 1%  without ITC benefits for affordable housing projects and 5% for under construction projects without ITC benefits. The buyers are expected to pay for the cost of land and the construction of the house. The existing regime provides for levying a service tax and stamp duty on the construction while providing 75% abatement. This service tax and VAT is replaced by central GST and state GST whereas stamp duty stays unchanged. GST has been expected to bring about transparency while purchasing property, increase in input cost, simplifying the procedure for procurement of funds and avoiding delay in possession of property. Earlier buyers were bound to pay double taxes on purchasing of under construction property but GST has remove this cascading effect and brought uniformity in rates across the states. It remains to be seen how far GST lives up to the expectations of providing seamless flow of input credit across the entire supply chain.