What you need to understand about the Implementation of GST in India

The introduction and implementation of the Goods and Services Tax (GST) in India in 2017 created a significant amount of confusion and speculation.

The GST implementation’s impact on the real estate sector is a topic worth discussing, given how it accounts for 6-8% of this country’s economy. The real estate sector is widely regarded to be one of the country’s most vital areas. Real estate is currently being taxed 5%, which is a decline from its previous 12% tax rate. In this article, we look into the implementation of GST in India and its impact on the plethora of elements of the real estate sector,

What does GST bring to the table?

Here are a few GST benefits worth talking about:

  • GST addresses one of the major issues of the previous tax regime – double taxation or the cascading effect of a group of indirect taxes. Indirect taxes like VAT were levied on consumers at different stages, leading to a hike in the prices of goods and services. With the GST in place, we no longer have this problem.
  • The calculation of tax under the previous tax system was frustrating, confusing, and tedious due to the number of taxes that were imposed at various levels for different categories of goods and services. However, this was taken care of due to the introduction and implementation of a single, unified tax like GST.
  • In addition to the benefits listed above, GST also allows business owners and vendors to sign up for a GST composition scheme, provided their turnover in a financial year does not exceed Rs. 1.5 CR.

What are the Disadvantages of GST?

Here are a few disadvantages of GST:

Boost in Operational Costs

Companies are now forced to invest in hiring tax professionals to ensure the employees are complying with the GST rules. In simple words, it is an operational expense and a significant one at that.

Burden on SMEs

Smaller businesses, specifically in the manufacturing industry, have to deal with the challenges that come with the GST system. Companies in special category states have to pay GST once their turnover crosses Rs. 20 Lakh. Many small and medium-sized businesses may not be eligible to claim Input Tax Credit, which makes it challenging to handle their tax expenses. If their turnover does not exceed Rs. 1.5CR in a single financial year, they might qualify for the GST composition scheme.

How has GST Affected Residential Property?

The following will describe the impact that the Goods and Services Tax has had on residential property:

  • GST is a simple and easy-to-understand tax structure that has led to a boost in the compliance from builders and developers alike
  • It has managed to remedy the issue of passing ITC benefits to buyers, and, in turn, reducing the chances of property purchase delay
  • It has also ensured feasible prices for buyers, due to the reduction of GST tax to 1% on residential properties
  • Finally, residential properties are priced reasonably due to the eradication of unused Input Tax Credit from the project costs.

How has GST affected Developers and Builders?

Developers would have a difficult time filing taxes such as VAT, excise duty, raw materials, customs duty, service taxes, and many others on essential services under the old tax system. Input Tax Credit was out of the equation under the old system, which means these taxes were added to the final price of the product or service.

However, with the Goods and Services Tax in place, you will find a sharp decline in the developers’ construction costs due to the subsumption of a collection of taxes and the provision for Input Tax Credit. GST’s implementation caused logistics costs to drop.

However, On the flip side, developers are forced to perform many arduous calculations to compute the ITC to send the purchasers. In simple terms, the ITC may be passed to the purchasers in the final stage. The absence of transparency in such a case has caused many buyers to delay their purchases.