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In the midst of the difficulties and problems of the implementation framework, the reform of the Goods and Services Tax (GST), introducing a unified tax system, accelerated the real estate turnaround and facilitated commercial transactions but has not kept its promise to provide significant price relief to consumers, even a year after its implementation.
Homebuyers who had placed their hopes in the reduction of real estate prices are disappointed because the overall cost of buying a property has not decreased, but in some cases it has increased.
The GST, which was introduced on July 1, 2017, eliminated multiple taxes on VAT, service taxes, central excise duties, granting, and so on. In the pre-GST regime, the average tax burden of buyers was about six percent, although in some states, because of higher taxation, it was double-digit. However, in the GST system, there is a single tax of 12%. 100 on the sale of residential property under construction.
Although real estate developers are eligible for the input tax credit (ITC), compared to the purchase of building materials, its impact is considered marginal in terms of tax relief.
Even in the affordable housing segment of the Pradhan Mantri Awas Yojana (PMAY), where the effective tax on the GST is eight percent, after taking into account a third of land cost reduction, it there is no cost-benefit.
For those states where the net tax in the pre-GST regime was in the majority, there is no additional tax liability for homebuyers, even if it is not the case. there is no cost advantage.
The real problem is that the benefit of the ITC does not benefit homebuyers in terms of cost reduction as it is not actually pbaded on to buyers because of its complex nature and its lack of clarity.
There is still no clarity on the available land cost allowance for the calculation of the service tax on projects under construction, which has major implications for the final price .
According to Anuj Puri, chairman of the board, Anarock Property Consultants, the ITC's confusion goes beyond the percentage of discount to mode and slice of the discount due to the complexity of its calculation.
Ramesh Nair, CEO and Country Head, JLL India, explains the complexity of the ITC: "There are different methods of calculating tax for different projects / phases of a single project. the reverse charge structure, considering that inputs are purchased at a higher tax rate while production is charged at a lower tax rate. "
Thus, automakers are seeking to simplify the tedious process of filing returns and are asking for a more structured mechanism of legal protection against defaults.
Real estate developers engaged in the construction of affordable housing are also not very happy with the benefit of the GST price reduction. Affordable housing cruisers like Signature Global's Pradeep Aggarwal are either calling for abolition or at least significantly reducing the tax rate to push affordable housing and achieve the "Housing for All" mission.
Proponents of luxury housing also complain that the property cost component is quite high in this segment, there is no significant corresponding benefit.
There are arguments in favor of stamp duty on GST real estate transactions to make it much more efficient in terms of price. However, real estate buyers benefit greatly from investing in ready-made residential properties because there is no GST and no development risk.
There is yet another flagrant aspect of the GST: that it is restricted to residential projects under construction and that it does not apply to properties ready to move or to the secondary market. According to Honey Katyal, CEO of Investors Clinic (a leading real estate marketing company), buyers might be tempted to book properties under-build despite the fact that buying a property is always expensive and the relative impact of the GST this case.
Despite these start-up problems, the positive impact of the GST on the real estate sector as a whole can not be overlooked. The GST has made the real estate sector more streamlined and transparent, with fiscal predictability, strengthening investor sentiment, which has led to a surge in foreign investment. And there is the emerging badet clbad in the field of real estate storage, which has had a major push with the GST.
A recent Capgemini report on World Heritage reveals that key reforms such as the TPS and RERA have proven to be a major driver of real estate recovery. After a gap of about eight years, the equity market is witnessing a return of real estate IPOs. And while the government intends to fine-tune the GST architecture and compliance process to make it more robust, a HSBC report says that in the coming years the GST will lead to greater formalization.
The government's attempts to adjust the GST, particularly its new proposal to reduce the GST on building materials from 28% to 18%, will have a major positive impact on real estate costs and will make it possible affordable housing.
(Vinod Behl is founder and publisher, Ground Real (i) ty Media, a real estate content consulting firm.)
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