NEW DELHI: Housing price are likely to fall by up to 5% following the implementation of goods and services tax (GST) after the Centre and states decided to peg the levy at 12% on finished houses or apartments.
After allowing for credit for taxes paid on inputs such as cement, steel, paints and other items, the actual burden will be lower. As a result, the price of a Rs 1-crore apartment may come down by Rs 3-5 lakh, said a consultant.
The net price of houses in the affordable segment, which cost up to Rs 30 lakh (at Rs 3,500 per sq ft of built-up area) should fall by 5%. Once GST kicks in, home buyers will not have to pay the 4.5% service tax on the final price that they shell out while taking possession.
As a result, tax consultants and realtors said that fixing the GST rate at 12% was a customer-friendly move and would lead to either lower tax liability or be tax neutral.
For a premium product, however, Credai chairman and CMD of ATS Infrastructure Geetambar Anand said that at 12% GST, customers will benefit from projects that cost up to Rs 6,000 per sq ft.
A premium project may not gain significantly as developers build high margins into such properties. Manoj Gaur, Credai vicepresident and MD of Gaursons, said that if input credits are allowed properly, the 12% GST rate is favourable to buyers.
Suresh N Rohira, partner, Grant Thornton India, said that GST at 12% would certainly bring down the tax liability in the affordable segment. He said that the taxes on inputs for construction are more than 12% of the final price.
But if a developer is working with a high margin, which is the case in premium project, the net tax will remain significant. Priyajit Ghosh, partner – indirect tax, KPMG India, said that under the GST regime, 12% GST on construction sector would make the sector better off. Because of input credit, the net tax on finished product would have a downward pressure.
According to a Crisil report, at present, a developer pays excise tax and VAT on inputs like cement and steel at 27.7% and 18.1% respectively, which vary from state to state. Now, cement and steel will be taxed at 28% and 18% respectively under GST.
Therefore, his fresh tax liability would be nil. If other expenses and tax paid thereon is included, the developer could have claimed more. But under GST, he can claim only up to the fresh tax liability. But the service tax that a buyer pays so far at the rate of 4.5% will not be levied now. So the next cost for buyers of not-so-premium houses will decline. But if the product is in the premium segment, the entire input tax credit is not sufficient to bring down the fresh tax liability to nil. A premium construction can be done at Rs 5,000 per sq ft. The net tax collected by works contractor would be Rs 900 per sq ft from the developer. But while selling at Rs 10,000 per sq ft, the developer needs to pay Rs 1,200 per sq ft. Therefore, after adjusting against the taxes on input, he will have to pay Rs 300 per sq ft or 3%, which he will recover from the customer. But as the developer will also pay taxes on other expenditures, the net tax liability at 12% GST on finished product would be very small.
Source: http://timesofindia.indiatimes.com/business/india-business/gst-gains-prices-of-flats-may-drop-by-up-to-5/articleshow/58798164.cms
