The real estate sector is the second largest employer in the country after the IT sector. The industry contributes about 5 percent to India’s GDP. However, like all other sectors, the real estate arena is also plagued with a wide range of taxes. Moreover, the calculations of the buyer for the loan amount can fail if the person who took the loan doesn’t study all aspects of the indirect tax.

In real estate business, both the seller and buyer normally agree on a base price. The considerations for the loan amount are based on the basic sum. A wide range of indirect taxes such as service tax, stamp duty, registration charges, VAT, and excise duty comes into picture when you attempt to make payments in installments. If GST is implemented all these taxes will be merged.

Desperate push by Congress to limit GST rate

Even though there is no cap in the tax structure in the constitutional amendment, the Congress is pushing hard to limit the total GST rate at 18 percent. However, the ruling party is trying its level best to maintain the rate between 17 to 19 percent. Eventually, this is an increase over the existing service tax rate.

Input tax credit

Currently, the builders pay CST, excise duty, octroi, and customs duty on the purchase of materials. Buyer needs to pay these taxes at a massive rate of 22 to 24 percent. Upon implementation of the GST, this tax would be pegged to 18 percent. However, the claiming of input tax credit by the developer seems to be difficult.

In the current draft of the Goods and Services Tax (GST), the Section 16(9) nullifies the presence of input tax credit. However, this will happen only when the principal acquires the goods and services while performing contact work.

According to industry analysts, the feedback provided by the experts is divided over the impact of the GDP growth. However, this will happen over the period of 1-2 years. With the current restrictions in place, the GST may not work well for the real estate sector.