11 Oct 2017Posted By: Arvind


GST impact on Real Estate Business including pros & cons

 

Everyone’s dream is to have his/her own dream home. This makes real estate sector important as it helps in making dream come true. Real estate is one of the largest and profitable sectors all around the world. This is the evergreen sector that shows a comparatively better growth in terms of revenue generation. It is the second largest sector in terms of employment generation. In recent years, this sector has been backed up by many favorable policies made by Govt. of India and supported by respective State governments.

To understand the impact of GST on Real estate business it is important to understand what real estate business is and how this sector works.

Real estate sector deals in with land and construction of buildings on the land with air rights above the ground and underground rights below the ground. There are many real estate companies dealing in this sector which built flats, duplex, triplex, multiplex etc and hands over to their clients. Some of the companies are engaged in purchasing and selling the property and earning the profit margin.

Real estate sector has been divided into 4 types:-

1. Residential real estate

This type includes construction of new buildings like apartments, duplex, triplex etc for the families. This basically includes the residential area for people.

2. Commercial real estate

It includes shopping malls and centers, shops, hotels, offices etc. The apartments which are built mainly to sell it to its customers, then such apartments are part of a commercial real estate.

3. Industrial real estate  

       The buildings which are constructed and used for production, distribution, and storage of goods, manufacturing, developing warehouses,          sales etc come under this.

4. Land

Purchase of vacant land and selling it to their clients.

Working in Real estate Industry

Investment in real estate sector brings a good amount of profit. That’s why it attracts a huge number of investors. There are certain steps which show the working of new or old players in real estate industry.

1. Apply for license if you are looking to be a real estate salesperson

To be a salesperson of real estate business, a person must qualify the written exam for it. Those students who pass this exam are given license application which they have to submit and get it approved by CalBRE

2. Purchase of land

Vacant lands are purchased and registered in the name of the company. This land is used for making buildings or setups (in case of industrial purposes).

3. Construction of new buildings

Real estate companies build new buildings as per the requirement like for commercial purpose, industrial purpose or residential purpose.

4. Real estate agents

They play a major role in assisting the potential customers who are looking for houses/buildings for home, business or any kind of investment. They help in buying and selling of real estate products.    

5. Seller’s agents

These are those individuals who help sellers in finding buyers for their flats/buildings etc. They are paid a certain amount of service charges by the sellers.

6. Buyer’s agents

They help buyers in purchasing home for them. They find sellers and try to ensure that the sellers and their property is genuine. They are paid service charges by buyers.

Taxes on Real estate

Individuals doing business had to pay property taxes on real estate. Those who purchase the flats had to pay monthly taxes on their property called property tax. If a real estate is sold then both the owners i.e old owner and new owner have to pay the taxes for the year depending upon months for which they have owned the property for that financial year.

Components

Bengaluru

Mumbai

Pune

Chennai

VAT

4.0%

1.0%

1.0%

2.0%

Service Tax

4.5%

4.5%

4.5%

4.5%

Stamp Duty

5.7%

5.0%

5.0%

7.0%

Registration Charges

1.0%

1.0%

1.0%

1.0%

Total Taxation

15.2%

11.5%

11.5%

14.5%

 

 

 

 

 

 

 

 

 

Source: Industry, JM Financial

GST on Real estate

Goods and Services Tax (GST) is going to eliminate the long and complex indirect tax structure from the country. Under construction properties of real estate sector is going to get 18% GST from 1st July 2017 which includes 9% SGST and 9% CGST. The flats, buildings or some part constructed to sell wholly and partly includes 12% of GST. With this, the tax will increase from 5.5% to 12%.

 GST rate on input materials of real estate

Description of goods

Rate

Steel

18 percent

Cement

28 percent

Marble and granite

28 percent

Blocks of marble and granite

12 percent

Sand-lime bricks and fly ash bricks

12 percent

Natural sand, pebbles, gravel

5 percent

Lifts and elevators

28 percent

Data provided by BMR

Pros and Cons of GST on real estate sector

The pros of GST on real sector can be seen in two ways:

  1. Positive Impact on businessmen 
    1. Single tax rate system – It increases the ease of doing business in India as GST ensures that the indirect taxes are single and common in all over India. This reduces the choice of choosing those states which offer fewer tax rates. Hence, it increases the all-around development in all the states equally.
    2. Removal of hidden costs – There are many taxes or costs involved which unnecessarily increases the final cost. Hence, this will be removed due to GST. 
  2. Positive impact on real estate developer
    1. A developer could take input credits on a sale of under construction property against the taxes that are paid by the buyer.

Cons of GST on real estate sector

  1. GST will enhance the general expense of under construction property for buyers.
  2. Increase in the tax rate.

Thus, on the whole, GST is going to make the business easy and going to be profitable in long run.

 

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