The real estate industry has been through quite a lot of reforms over the past year. Owing to the surge in the number of housing projects and the launch of the Smart City initiative by the government, the real estate industry is enjoying an influx of both supply and demand. If you haven’t yet purchased a property, doing so in the present scenario will be easier than ever. The latest reform that could further benefit real estate businesses is the soon to be launched Goods and Service Tax (GST). GST aims to restructure the tax system in the country by removing taxes levied based on each state and instead levy a single indirect tax amount across all major goods and services industries including real estate.
As a home buyer, there are many things you have to carefully consider before purchasing your dream home. With GST effectively implemented into the system, it could change the way you approach your purchase decisions. Here what you can expect from the housing market now that GST is in full flow.
Subsuming multiple real estate taxations
The required payment of multiple taxations when purchasing a home has always plagued a consumer’s purchase decision. With GST implemented, two of the most common real estate taxation- Value Added Tax (VAT) and Service Tax have been dissolved into a single tax amount. Post GST, the Service Tax has increased to a constant 18%, and after deduction of tax from land value, the final taxable amount is 12%. This tax rate is applicable only for under-construction properties, but whether that should hike property prices is still under debate.
Value Added Tax (VAT) will also get dissolved due to its varying numbers across each state. Currently, VAT varies from 1% to 5 % and some cities don’t even charge VAT on properties. The implementation of GST could eliminate unnecessary cases of litigation that have risen due to complication caused by VAT.
One tax which will remain unaffected post-GST is Stamp Duty; tax that must be paid to the government on successful registration of a property.
Improved transparency on property transactions
Coupled with the newly introduced RERA Bill, GST will further enhance the transparency between buyer and seller during property negotiations. The fact that taxes imposed on a property are easier to comprehend, makes purchase decisions quicker for buyers. The newly formed Goods and Service Tax Network (GSTN) will also aid in managing the massive inflow of legal data. Taxpayers can visit the GSTN site to gather information, register and pay any tax that has been reformed under GST.
Improved access to nationwide housing projects
Prior to GST, tax rates varied from state to state, so it would make purchase decisions harder if you admire a property in a state where the tax is higher. Now, with a single indirect tax, purchasing a home in any desired part of the country becomes very easy. You can even get purchases done very fast through online methods, as real estate e-commerce sites are expected to speed their operations in terms of logistics.
Impact based on type of real estate project
As real estate is a broad industry, GST rules vary depending on the kind of project in development.
- Residential properties: The Service Tax rate is at 12%, but that shouldn’t stop consumers from looking to purchase a dream home. Other factors like quality, proximity, builder credibility and general word-of-mouth promotion will still define the purchase of a property. GST will not apply for ready-to-occupy homes.
- Commercial properties: Commercial properties are expected to receive close to the same taxation as that imposed on residential properties.
- Affordable housing: All affordable housing segments are, at the moment, exempt from GST implications.
GST is already proving to be a boon for home buyers. If you are looking to purchase a home during this highly profitable year for real estate, choose a property from Radiance Realty.
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