When it comes to real estate, which is considered an asset for capital gains, everyone has one question: has the property gone more expensive or is cheaper now?
Let’s try to find out here:
Post the implementation of the GST, it depends on these 5 points if the property’s value would have gone up or down.
A) The GST is only levied on properties that are right now under construction or are unfinished projects. If you have bought a property post 1st July 2017 and the property has received a completion certificate as well, then GST would not be charged on the property.
B) In the Pre-GST era, the buyers of the property were charged service tax, state VAT, stamp duty and registration charges on the sale price of the under construction property. The service tax and the VAT were 3.75% and 4.5% respectively. The GST, that have come into picture would only be levied at 12% but would only replace the service tax and the VAT. Registration charges and the stamp duty are state taxes and these are expected to remain the same as before.
C) But then does that mean that our construction properties have gone more expensive as the tax rates have increased from 4% to 12%. No, not really, this is because the anti-profiteering clause under the GST states that any benefit that the builder makes after claiming the ITC (input tax credit) would have to be passed on to the customers. The builder as per the law can claim the ITC on the construction and services, which is about 15-20% of the total construction cost. This would hence help reduce the sale price of the finished property and hence the ultimate effect of GST would come down.
D) But then, can we generalize that all the construction properties have become cheaper under the GST regime? No that isn’t the case either, the builder can avail the input tax credit only on the cost of the construction which generally ranges from ₹ 1,200 and ₹ 2,000 per sq ft for the projects. Though in various cases where the cost of construction can go beyond this range as well.
The input tax credit of the builder that could be passed to would be in the range of ₹ 250 to ₹ 400 per square feet in most of the projects. So only the property that has a lower land value and the GST on the sales price is less than ₹ 250 or ₹ 400 are bound to get cheaper.
E) The final effect of GST who gains and who loses?
Top Gainers: For the consumers who plan to buy the work in progress construction property that is priced below ₹ 4,000 per sq ft, for this kind of properties the prices are expected to come down.
No Effect: For the customers who plan to buy the under construction properties that are priced between ₹ 4,000 to ₹ 5,500 per sq ft, the prices are expected to remain the same.
Top Losers: The customers who plan to buy the under-construction property priced above ₹ 5500 sq ft, the prices are expected increase in that case.
The overall impact of GST on the housing sector is going to be beneficial for the affordable housing segment. Whereas if you plan to purchase a big house, be prepared to shell out more from your pocket. Also, the GST is expected to cut down a lot on the cash transactions which earlier led to black money as the cash transactions would not be eligible for input tax credit (ITC).