As the Goods and Services Tax (GST) Council continues to meet to fix rates and streamline rollout procedures for the new tax regime, people are still confused whether the introduction of GST will increase construction prices or not.
How will GST impact construction prices?
The developer community has been raising concern about how the GST will be an unmanageable burden as the land may be doubly taxed. Amid the issue of double taxation, it has been made clear that all under-construction flats would be charged only at 12 percent, with the land tax of 6 percent excluded. Meanwhile, all new real estate projects will be taxed at 18 percent.
There has been a marginal increase of 2 percent for cement and cut to 5 percent for coal, limestone, lignite which would bring down construction costs.
Labour is no longer an unorganized sector as every worker should be paid wages according to the market rates and an invoice has to be produced. This added with the demonetization drive and Real Estate Regulatory Act (RERA) coming into place, would help eliminate the cash component in the industry.
The manufacturing industry can now sell products at a lower rate, which should also help to bring down prices.
But is the industry ready to take it on?
“We can’t pass on GST to customers. The taxes on ongoing projects will be a major burden and especially with very few launches in the last few months it will be difficult. We request them to revisit their position on real estate,” said Rohit Raj Modi, Secretary of CREDAI – National.
The biggest game-changer however will be the introduction of Input Tax Credit, whereby credit of taxes paid at each stage of construction can be claimed by the builder and benefits to be passed on to the consumers.
State governments have also been instructed to make approvals quicker to save on time and money. “It’s like basically now the construction technologies can only solve the problem I think.
One is an overall reduction in the size of the units but then there is the aspiration for more spaces. Also, something on the technology front will reduce the cost of the construction because this is a real way in which we can reduce prices. It is challenging. But we will do everything,” said Dharmendra Pratap Yadav, Secretary to Government, Housing & Urban Department, Tamil Nadu.
This comes in the background of the RERA which many experts are betting will increase prices by 3-5 percent. But, for the compounded effect of GST, the price scale is not going to dip or soar. Although, builders believe that the industry will be able to tabulate the actual benefit to the homebuyer only after a month.
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