GST - Goods and Services Tax got a constitutional amendment cleared by Rajya Sabha in the 2nd quarter of last financial year. To understand this first we would need to understand the current structure of taxes. Income tax which are levied upon companies profit come under central government. Indirect taxes are levied on consumption, Provision of services and manufacturing goods. Taxes on consumptions come directly under state government domain.
Now to know what is the problem in these taxes here is an example:
To make a product for consumption first it has to be manufactured. the central government implies in direct tax called central excise at factory gates. After this the product is marked with one more tax at retail outlet known as VAT value added tax. so there are basically different taxes on consumption of product.
Today a consumer is paying tax on tax, and he does not know what extent he is paying tax on goods. So once GST comes into effect consumer will not end up paying extra taxes.
To bring relief to consumers the union government has made a deadline of April 2017 to implement the GST. There have been various views form residential real estate industry on how GST will affect Real Estate market.
As for service tax government has given abatement of 3/4th of cost of unit as land and goods for construction and only 1/4th of the cost of unit is treated as service. the result of this is that a homebuyer is paying 3.75% of cost of unit as service tax (1/4th of 15 %). Also for under construction property one will have to pay additional VAT for some states like Karnataka, Haryana and Maharashtra. Builders deposit this tax with state government. State Government levies Stamp Duty with different rates for registration of sale agreement of real estate transaction.
Service Tax and VAT will be replaced by Central GST and State GST Stamp duty will not change. one cannot predict the impact of GST on real estate market as one is not sure of GST rate and the abatement for land value in total agreement value of under construction residential unit. There has been debate on the court's interpretation of whether construction of residential complex is a work contract or not. Also currently government does not allow input credit if the composition scheme is used by builders/ developers for calculation of service tax and VAT.
The developer pays many taxes and duties on the purchasing material for construction such as custom duty, central sales tax, excise duty etc. If the GST rate comes below 20% it will overall reduce the cost of production for developers. which directly will affect the cost of residential units, which is additional benefit to homebuyers.
As buyers are not liable to pay any indirect taxes for a ready to move in property, GST will make no big difference.