GST impact: Affordable housing to get fillip; luxury homes to get costlier

Luxury property prices might go up marginally

The government’s initiative to make housing affordbale is set to get yet another boost under the new goods and services tax (GST) regime. However, prices of luxury properties and those being constructed at prime locations where land rates are high might go up from July 1. 

In the run-up to the GST launch, the government imposed 18 per cent GST levy on the construction sector, applicable to two-thirds of the value of the property, thereby, bringing the net rate down to 12 per cent, when calculated on the entire value.

According to government officials, the net tax incidence, therefore, remains the same or what the GST council decided on last month.

Experts said that the impact on the overall economy will filter through to the real estate, construction, and warehousing sector. In construction, inputs such as cement and ceramic, tiles, building blocks and bricks and prefab structural components for buildings, among others have been placed in the 28% tax slab. Whereas other components such as iron and steel have been placed in the 18% bracket.

“Work contracts addressing construction intended for sale were classified as a service and were placed in the 12% category. It is noteworthy that the value of land would be included in the amount charged from the end-user. Pradhanmantri Awas Yojna (PMAY) has been exempted from GST. Unlike the previous regime, input tax credit has been permitted for the real estate sector,” said Anshuman Magazine, Chairman, India and South East Asia, CBRE.

According to experts, the declared rate of GST at 12% will now become 6% above the existing taxes, and the end consumer of under-construction properties will end up paying extra in most of the states. 

“However, the developers will have to reduce the per square feet rate to pass on the benefits of input tax credit under the GST regime. The step should bring back the net outflow amount of the end-consumer to what it was earlier. This means that as far as the prices are concerned, there would not be a rise,” said Sunil Mishra, Chief Strategy Officer, PropTiger.com, Housing.com and Makaan.com.

Also, the discount of 33.33% on land price would result in buyers paying a service tax of 15% on 30% of the value of the property. This would bring down the net service tax rate to 4.5%.

This according to experts would help in bringing down the cost of affordable housing projects further. “There is a possibility that places where land price is higher than the cost of construction that prices might go up, however for the majority of the residential market which includes affordable housing, this is a good thing,” said Samantak Das, Chief Economist & National Director – Research, Knight Frank India.