Nine months on, realty firms still find GST complex

Home buyers may continue to get a raw deal as many real estate firms are coming to grips with the goods and services tax (GST) nine months after it was rolled out on July 1 last year.

Developers are not passing on the tax benefits wherein prices are supposed to reduce. And for most of the projects, including those launched in the new indirect tax regime, the estimated benefit may not exceed 3% of the overall construction cost. Therefore, it may not translate into significant reduction is property prices.

“GST is still not fully understood by the industry,” said Ashutosh Limaye, head - research and real estate intelligence service, JLL India. Limaye believes although GST will give some pain in the short term, there will be more simplicity and clarity on medium to long-term.

The difficulty in properly knowing the law is due to the complex way it has been chalked out.

A recent World Bank report had stated that the structure of India's indirect tax is among the complicated ones in the world with high and larger number of tax rates. The tax slab of 28% is second highest among the sample of 115 countries having GST system.

A report released by JLL India-PwC India on Tuesday said that GST’s impact is muted for the ongoing and nearly completed projects, but, those launched post GST roll-out will see relief for home buyers.

“The combined results drawn from the technical analysis of the new indirect tax law and the practical approach being adopted by developers in the market suggest that price benefit out of cost savings due to GST is a likely event, but only in the distant future. Developers are in the process of evaluating the per unit benefit arising on account of the implementation of GST prior to any price reduction,” read the report - ‘Impact of GST on residential markets’.

Although the GST law mandates passing on the benefits to the home buyers by reducing property prices, “the timelines and manner of computation of such benefits are not clear under the law. Further, with maximum benefits available to projects which are yet to commence and minimum benefits to those nearing completion, it will be an uphill task for developers to compute the overall benefits arising due to GST and the quantum of such value transferable to customers,” observed JLL India-PwC report.

Kunal Wadhwa, partner – indirect tax, PwC India, shared that there are only a few realtors who are passing on the GST benefits in the range of 3 to 5%, but, the larger chunk of the industry continues to withhold the benefits to the customers.

On the subject, Kamal Khetan, chairman and managing director, Sunteck Realty said, “I don’t see much complexity apart from the differential tax rate that exists for various items. The tax benefit to be passed onto the customers will vary from 1% to anywhere above, depending on the ratio of land price vis-a-vis construction cost. If the land price is more, there will be lesser benefit for home buyers, while if the construction cost exceeds land cost, home buyers will get more benefit.”

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For most of the projects, including those launched in the new indirect tax regime, the estimated benefit may not exceed 5% of the overall construction cost. Hence, it may not translate into significant reduction is property prices