There is a general perception among homebuyers that GST is applicable only to projects that are under construction, and not on ready to move in apartments. Well, that may be true but does that mean homebuyers will now have to pay less for such apartments?
Under the new tax regime, GST on projects under construction will be paid by homebuyers on the sale price. Though developers have to pay GST on the entire project, they can avail credit only on the construction cost. This means developers will adjust/hike apartment rates in order to bridge the gap.
Homebuyers have been informed by developers that the prices of apartments will be hiked. With GST, buyers will now have to pay more for ready to move in apartments since developers are going to escalate prices in order to compensate the amount paid for GST compliance.
Nevertheless, industry stakeholders say that GST offers many benefits for homebuyers. The cost for construction is also expected to come down. Homebuyers who purchased the property after the developers have acquired Occupancy Certificate won’t have to pay any additional tax.
Prior to GST, developers paid excise tax and VAT on inputs such as cement and steel at 27.7% and 18.1% respectively. Now under the GST regime, the inputs like cement and steel are taxed at 28% and 18% respectively. However, the completed apartment will be taxed at 12%. This makes those customers buying a ready to move in apartment free from the tax burden.
For financial services, GST is taxed at 18%. Though that may be negligible for the affordable housing segment of buyers, the higher segment buyers will have to bear the brunt of it.
Although the new tax regime has a lot of benefits to offer, there are many challenges that need to be tackled in order to really make it beneficial for both homebuyers and realtors.