GST Impact on Indian Real Estate

Real estate industry plays a crucial role as a major contributor to the GDP inevitably influencing the Indian economy. It ranks second after the agricultural sector in generating employment and triggering demand for more than 200 ancillary industries. The uplift of this sector therefore becomes imperative for an overall robust growth.

With the recent implementation of RERA making waves in the sector, GST comes along as the icing on the cake. The sector is already on the way of being transformed to a more credible and transparent entity, with GST revamping it further in a big way. It is undoubtedly the most revolutionary tax reform to be passed and will have a profound effect on the economic prospects of India. For starters, it will bring a lot of transparency and reduce unethical transactions. As per the existing tax laws, VAT and Service tax, excise duty, entry tax, octroi is paid on the acquisitions. GST as a single and indirect tax law will simplify tax compliance and mitigate the scope for double taxation. It will increase the margin in the hands of developers by removing all the above-mentioned taxes. Whether this benefit gets passed on to the end-consumer is yet to be seen as pricing of real estate is driven by market forces than on costing principles.

The impact of GST on Indian real estate, as of now will be neutral, since the tax rate is indecisive and is expected to place real estate in the 12% bracket. It is however expected that GST will reduce the cost of construction to the developer and therefore will aid in reducing the current level of prices in real estate sector. Nevertheless, there will be a substantial benefit as it will usher in the required transparency and accountability and developers will reap the benefits of many taxes due to be encompassed by GST.