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Effect of GST on the Indian Real Estate Sector

Sakshi Jain
Sakshi Jain at March 13, 2023

GST on Real Estate Sector

The real estate sector is one of the most significant sectors of the Indian economy. After the agricultural business real-estate sector is the second largest employer in the Indian market. Moreover, the real-estate sector contributes a normal of 5-6 percent to the GDP that will further grow to 30% in the next 10 years as per the CAGR (Compounded Annual Growth Rate). Before the introduction of GST, the real estate industry was entangled with the multiple tax provisions as well as multiple indirect taxes. However, GST has simplified the tax compliance procedures for the real-estate sector.

1. Effect of GST on India real estate purchasers and sellers

Under the prior law, purchasers were at risk to pay taxes relying upon the development status of the property, i.e., regardless of whether the property was under development or complete. When buying a property under development, a purchaser used to pay Value Added Tax, service tax, stamp duty, and registration charges. Properties bought after completion were excluded from VAT and service tax, and just stamp duty and registration charges were payable. The greatest takeaway is that GST is a tax that applies to the general purchase price. All properties under development will be charged at 12 percent of the property estimation. This prohibits stamp obligation and enrollment charges. For finished properties, the prior arrangements will proceed and purchasers will pay no indirect tax for the sale of move-in properties.

2. Effect of GST on Indian real estate developers

Already, developers were obligated to pay customs obligation, central excise duty, VAT, entry taxes, and so forth on the cost of construction material. They additionally needed to pay a 15 percent tax on services like architect expenses, labor, legal charges, and so on. In the end, this tax burden was moved to the purchaser. Under the GST system, notwithstanding, the adjustments in construction costs are not as troublesome. For example, cement now is taxed at a rate of 28%. However, this is higher than the old tax regime that was of 23% to 24%, however, other indirect taxes applicable on the cement are subsumed under GST. Iron bars and pillar are now taxes rate of 18%, which were earlier taxed at 19.5%. Besides, the decreasing cost of logistics has brought reduced the cost too. The input tax credits will likewise have also helped in increasing net revenues. A real-estate developer can now claim input tax credits (ITC) on sale of under constructed property against the taxes paid by the purchaser. This has decreased the cost of the project, and this decrease in the cost is now passing on to the purchaser. Before GST, many entries were not entered in the books of accounts by the real-estate developers. GST has significantly brought down this rate because of GSTR-1 and GSTR-2A. Recently, the GST Council has also decided to introduce e-Invoicing which will keep a check whether the real-estate developer is evading GST.

3. Requirement for Automation

Considering the challenges that are faced by the real estate industry under GST, organizations need to carry out regular IT audits. Automation will give an enormous exhibit of advantages, including easy compliance, reporting, correlation of reports, dynamic, cost-adequacy, specialized and online help, and many more other benefits. Organizations that are equipped with Masters India GST Software and APIs will be able to tackle all the difficulties ahead easily.


4. The Bottom Line

Through the aforementioned points, we can say that GST has positively impacted the real-estate sector of the Indian economy by subsuming all the indirect taxes and by eliminating the cascading effect.

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