GST, a Pandora’s box for realtors, property investors

There are claims from the govt’s side, stating that the GST will bring down property prices. On the contrary, the prices will be higher, except in cases where the land cost is very low. Despite the availability of the softening effect of the input credit, home buyers will have to pay a higher amount than what they paid under the erstwhile service tax and vat regime. 

It should also be understood that although there are input credits available, the new GST regime will tax the labour component, as well as the Non-statutory charges made by the Govt. departments in providing approvals, service connections, clearances etc. While input credits can be taken, these charges will already push the construction cost upwards. 

In addition, the reverse charge mechanism, opens up a Pandora’s box for the developer having to pay GST on the various services provided by service providers who are outside the service tax net. All this, although might be claimed as input credit, will increase the production cost. The rental market will be badly hit by the  increase in tax from 15% Service tax to 18% GST, a straight 3% jump. All this will result in increase in cost for home buyer. 

There is another important point to be noted. Full input credit can be availed by developers, only for procurements and construction done after July 1 2017. For all construction and expenditure already incurred in the past, only about 60% of the input taxes paid can be claimed, and  that too, for expenses incurred in the last one year. For the expenses incurred prior to that, no input credits are given. Hence the projects which are already under construction will attract a much higher GST, than those which are yet to begin.  

Steel, which was previosuly taxed at 17.5% is taxed at 18% post GST. Other services which attracted 15% pre GST, attract 18% post GST. Services provided by government departments and services provided by labour which was attracting 0% tax, pre GST, is now attracting 18% post GST. All these services and materials will cost more. The impact of GST on cement and other materials will have to be seen and assessed.