Anuj Puri, Chairman – ANAROCK Property Consultants

A possible GST rate cut at the very beginning of 2019 could bring in the much-needed respite for the Indian residential sector, which is still reeling from reformatory changes.

Though ANAROCK data indicates that sales numbers picked up by nearly 16% in 2018, sales are still far from their peak levels.

The ongoing 12% GST rate levied on under-construction properties has proved to be a major deterrent for homebuyers, who understandably shied away from this added burden on their finances.

ANAROCK’s consumer sentiment survey also confirms that the prevailing GST rate has prevented as many as 49% of property seekers from buying under-construction homes liable for GST. They preferred ready-to-move-in homes that were exempt from this tax.

To attract home buyers and kick-start a more convincing revival of the residential sector, the GST Council is now considering reducing the GST rate for under-construction homes during its next meet in January 2019.

In fact, this move was expected in December 2018; nevertheless implemented, it will be a perfect New Year bonanza for millions of aspiring homebuyers looking to buy under-construction homes in the coming year.

Anuj Puri, Chairman – ANAROCK Property Consultants

If you are looking to buy a property or have already invested in one, you will know that there are tax implications involved. Let’s first examine the tax on property purchase and then elaborate on how one can save on it via tax exemptions and deductions.

To begin with, the taxation on property purchase has become much simpler than it was before. With the roll-out of GST, all taxes previously applicable on real estate purchase (VAT, Service Tax etc.) have been subsumed under this single unified tax system.

The overall costs involved in buying a property are broadly divided into two components – the first being the one paid to the builder/seller and other – the statutory and legal costs – to the government.

While the former roughly comprises 80-85% of the overall property cost, the remaining 15-20% goes as taxes to the government coffers.

So, are the taxes same for both under construction and ready-to-move-in properties? The answer is ‘No.’

Taxes for Under-Construction Properties

Statutory and legal costs for under-construction properties vary between 15-20%,

Anuj Puri, Chairman – ANAROCK Property Consultants

The applicability of GST in the Indian taxation system was a move aimed towards ‘one nation, one tax’.

Post land abetment, the applicable GST for under-construction properties was 12% while ready-to-move-in flats were kept out of the GST ambit.

Even for under-construction properties, there was a ruling of Input Tax Credit (ITC) pass-over to the buyer to ensure that it becomes a tax neutral proposition.

While calculations and ITC pass-over still remain a challenge after 1.5 years of GST regime, a recent announcement stated that there is no GST applicable only on ready-to-move-in flats wherein sales took place after the issue of completion certificate.

This is likely to add woes to buyers as well as developers.

Impact on Buyers

Until now, all properties that were treated as ready-to-move-in were out of GST ambit, so buyers had significant choices.

As per ANAROCK data, more than 90,000 units out of total unsold inventory of 6.87 lakh units (as of Q3 2018) across the top 7 cities were ready-to-move-in – a massive 14% of the overall unsold stock.

Anuj Puri, Chairman – ANAROCK Property Consultants

The Goods and Services Tax (GST), a revolutionary tax reform rolled out in July 2017, has effectively replaced the previous Gordian Knot of multiple taxes like VAT, central excise duty, commercial tax, service tax, octroi, etc.

It has made India a ‘tax-neutral’ nation – and while it evoked a response best described as ‘mixed’ from real estate buyers, most of them are in favour of it.

This is natural, as the unitary tax compliance system has simplified the homebuying process – and with the passage of Input Tax Credit (ITC), there may not be a significant additional burden to buying a home.

Homebuyers in the affordable housing segment – specifically homes of up to 60 sq.m carpet area in size – have benefited significantly from the reduction of GST by 4% (from 12% to 8%).

However, even almost a year after GST implementation, the only real clarity that exists for property buyers is on the prevailing GST rate of 12% on under-construction projects.

There is still confusion about the amount of rebate that a prospective homebuyer is entitled to on the back of the pass-over of ITC.

Anuj Puri, Chairman – ANAROCK Property Consultants Pvt. Ltd.

The switchover to the GST regime is undoubtedly one of the biggest tax reforms in post-independence India.  From July 1 2017, GST effectively cuts through a confounding Gordian knot of taxation complexity in the country.

In other words, it replaces the multiple taxes levied by the central and state governments and will become subsumed of all the indirect taxes, including central excise duty, commercial tax, octroi tax/charges, Value-Added Tax (VAT) and service tax.

Anuj Puri, Chairman – ANAROCK Property Consultants Pvt. Ltd.

The Goods and Services Tax (GST) is, beyond doubt, the most revolutionary tax-related reform to be seen in India in several decades, since it will eliminate the conflicting and cascading taxation structures which have confounded several industries over the past few decades. It will most certainly have a profound effect on India’s economic prospects.

A single indirect tax which covers all goods and services will, in the long run, increase tax collection by making it easier for retailers and several other businesses to comply and also moderate overall taxation levels.

That said, it should be remembered that the favourable effects of this new taxation regime will become evident only within 2-3 years of its implementation.