The recommendation of the Group of Ministers to charge
3% and 5% GST in place of the existing 12% on the underconstruction flats will reduce the tax burden on the real estate sector, but realtor is losing out on the input tax credit. . They believe that due to non-payment of tax credits paid on the cost of raw materials and services, there will be no significant reduction in their cost, due to which the price of houses will not be drastically reduced.
Pradeep Aggarwal, chairman of Assocham’s Affordable Housing, said that this proposal is beneficial for both the industry and buyers in a cursory view. At present, GST is levied on 12% GST on houses without compulsory certificate, which will come down to 5%, while the rate on affordable housing will be only 3%. But not getting input credit on raw materials will be a big challenge. Experts say that currently the government also gives 33% abatement covering the cost of land, leaving the effective rate of GST to 8% instead of 12%.
On receiving input tax credit, the actual burden is further reduced and fluctuations in raw material prices also keep adjusting. But the lump sum 5% rate without credit does not seem to give much relief. Amit Raheja, CMD, Wealth Clinic, said that snatching input credit may actually result in stable or in some cases price rise.
According to Gulshan Homes Director Deepak Kapoor, “Not getting input tax credit after the rate goes down will increase the construction cost, as most building materials have higher rates and we have to pay higher taxes on raw materials. Builders will have little choice but to pass the burden on this cost to the customers. In such a situation, it is difficult to say whether prices will fall or not.
Ankur Dhawan, Chief Investment Officer of Prop Tiger, said that in states where VAT was more than 5% earlier, customers will have to pay less tax. But non-receipt of input tax credit is negative for both the developer and the government. In such a situation, the invoice chain will break and most developers will pass on the cost to the customers. Mahagun Group director Dheeraj Jain said that before reducing the rate, it is very important to decide how much construction of the property has been completed and how much is left. The lower rates sound appealing, but we will have to wait for its impact.
