Will GST Makes Homes Expensive In Bangalore?
As a prospective flat buyer or an investor, the GST has come as a poser and forced them into a dilemma as to whether move ahead or postpone the decision. All kinds of buyers & investors -whether looking for apartments in Bangalore, BDA flats in Bangalore, furnished flats in Bangalore, new flats in Bangalore, residential apartments in Bangalore or any other- would first like to be certain of the effects of the GST on such units. Over all, the answer seems to be that the move will be price friendly if not neutral. However, due to the very complexity of the scenario, the answer would be much more nuanced.
The normal narrative is very simple: as the Revenue Secretary has himself asserted the real estate sector will prove to be a winner under the GST regime since a rate of 12% for apartments will cut prices substantially. According to the existing mechanism, flats in Karnataka attract a works contract component taxed at 4% under the State VAT laws. These are on the aggregate value of the contract as categorized under “the composition scheme, or 14.5% on the value of the material with input tax credits”. All who buy flats in Bangalore must pay over and above, a separate 15% tax on services availed — including architect/s transportation — that goes into building an apartment to the Government of India.
On the other hand, the GST rates have been set at 12% tax and according to the officials; this will serve to bring the costs down. The prices will be dampened further if the input tax credit to the developers is factored in. The Revenue Secretary has himself admitted that some construction materials and appliances employed for building flats will attract 28% GST regime but the end product will be taxed at only 12% GST. Double taxation will also be eliminated as GST would be considered as single transaction to be taxed at pre-decided Revenue Neutral Rate (RNR).
However, the reality is much more nuanced. As an investor / buyer of flats in Bangalore, one is mandated to pay VAT and service tax at flat’s price less land costs. On the other hand, the GST regime will not view these separately but instead, tax the entire product (flat + land costs) at 12%. While land costs come under the GST ambit, any excess input tax credit will not be refunded. On the other hand, entire input credit — aggregating excise duty and Central sales tax on construction materials will be allowed, as a first.
In combination with the recently imposed RERA, GST however, is expected to push up the prices. While taxes will certainly be rationalized, GST will ensure that under-construction projects will attract 12% tax up from 4.5%. Steel will be taxed at 18% GST and cement is in the highest bracket. The minimum wages are also being revised that will hit this sector the most, further stressing prices.
Nevertheless, as the sector become more transparent and buyer friendly with the RERA & GST, the market will boom making this the best time to buy. This is especially so as home loan rates are on a downward plunge and the market is favorable both toes end-users and investors.