Goods and Services Tax (GST) has been the hot topic of the nation and its effects are much debated across sectors. Experts say that after GST is implemented, a number of hidden and cascading taxes will be removed, which will help buyers. The Finance Ministry has made it clear at various levels that there should be no additional tax burden on consumers. All existing taxes such as VAT, CST, Excise Duty, Service Tax, and Entertainment Tax shall go away and GST will replace them.
Just before the implementation of GST, many builders are asking for full and final payment of properties stating various reasons. However, the government of India has clearly deemed this as an illegal move, and so buyers should be informed about all of it very minutely at every level. Industry experts have repeatedly mentioned that property rates would in no case rise up with the implementation of GST. While the service tax charged would go up from 4.5 per cent to 12 per cent, it would be off-set by “Input Tax Credit” under the GST law, which would help keep the final selling price neutral.
Enough has been said about what a significant reform GST will be. But if there is one thing that completely stands out about this new tax, is – the mechanism of input credit under GST. Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs. Refer to the below graph to understand this in detail:
Given below are the prerequisites needed to claim input credit under GST,
- One should have a tax invoice (of purchase) or debit note issued by the registered dealer.
- Where recipient does not pay the value of service or tax thereon within 3 months of issue of invoice and he has already availed input credit based on the invoice, the said credit will be added to his output tax liability along with interest.
- The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit.
- The supplier has filed GST returns.
Possibly the most path breaking reform of GST is that input credit is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated before you can claim it.
Some key points to be kept in mind here with regards to the onset of GST implementation are:
1. The most perennial question on the minds of the homebuyers (with respect to GST) is -‘Is it a good time to buy a house?’ Real estate experts say that projects that will be launched after July 1 (post GST implementation), will have a slight advantage. Though a 4.5% service tax is being replaced by a 12% GST, the advantage is that a number of hidden and cascading taxes will be removed under the new regime. Developers will also get several tax credits under GST, which experts believe will make projects launched post July 1 comparatively cheaper.
2. The effect of GST would be slightly varied in case of projects that are under construction. In the case of under-construction projects, developers will get ITC for the yet-to-be constructed portion. Hence, even if buyers have to pay 12 percent GST, they are entitled to get the ITC (passed on to them by the developers).
3. Despite the law (stating that the builder cannot charge extra post GST implementation), if any builder insists for the same, it can be deemed as profiteering under section 171 of GST law. In order to be cautious, the buyers should be well informed and educated about all the features and intricacies of GST.
4. Pre-GST offers by builders are something that the homebuyers might be experiencing currently. But according to market experts, there are alleged ways for builders to collect money and clear dues. Reducing inventory through deep discounts is also a motivation for developers.
5. In Real estate sector, a huge percentage of each project expenditure goes unrecorded in the books. GST will cut down this percentage due to cloud storing of invoicing.
6. For buyers, GST rate is not the only important factor to be considered here. The abatement rules as applicable under the service tax regime and the input tax credit facility for developers will determine if the effective tax incidence on real estate is lower or higher under GST.
7. As GST proposes to roll multiple taxes into one, the cost of construction will come down. This will bring more liquidity into the market and boost home sales. Free flow of credit for developers will also translate into an increase in margin in their hands. Furthermore, for developers, the actual tax effect will be lower than the existing one mainly due to the input tax credit on raw materials that builders get against payment of taxes on inputs like steel and cement.
Whenever anew reform is launched, a sea of change is what is expected out of it, and what is actually delivered. The same will be the case of GST implementation. A lot will depend on the proper implementation and an effective system of claiming tax credits. However, seeing the successful implementation of GST in other countries, we are hopeful that in the long run this new taxing regime of ‘one nation, one tax’ will have a positive impact overall on real estate sector, as well as all the other sectors.