What is the impact of GST on real estate industries of INDIA?
The introduction of GST would enhance attractions of other countries towards India as the investment destination through encouraging easier operations and higher transparency especially in property deals. In short term basis, the warehousing segment and industrial property shall be the most beneficial sectors of GST Adoption. However nothing can be firmly said if adoption of GST system will definitely bring the prices down in residential and commercial segments as sales of immovable property on which stamp duty continues to apply is outside the ambit of GST.
POSITIVE- IMPACT OF GST ON WAREHOUSING AND INDUSTRIAL PROPERTY
As said earlier, in short run, the warehousing and industrial property sector shall be the prime beneficiary of Adoption of GST. The decision of establishing a warehouse shall no longer be on the base of tax arbitrage. It will be based on achievement of solving the optimal logistics. This will reduce the number of octroi checkpoints leading to considerable reduction in transportation time. Further, the Logistics companies shall look forward to establish large warehouses located on transit corridors.
We can therefore see the development of spoke and hub system in the warehousing, the spokes being on feeder lines and hubs on the transit corridors. We thus are expecting the nation to become a massive large market by cost of products being brought down. Further, the recent Modi government initiatives like 100% FDI in e-commerce sector and “Make in India” shall also boost the warehousing and manufacturing sector. Various international players like E-bay and Amazon have entered Indian markets already and have started to occupy large spaces in warehouses to gain their share in the E-commerce industry.
Neutral- Impact of GST on commercial property
Commercial leasing makes up for the larger portion of commercial property business in our country. Currently, commercial property leasing is considered as a service under finance act,1994 and is thus is taxed as per service tax. The service tax being applicable at 15%. After the introduction of GST, it is assumed that this treatment shall remain unchanged and commercial property leasing will be subject to GST. The negative or the positive impact is primarily dependable on the GST rate which is applicable. Moreover, adding to this is the ambiguity about availability of GST tax credit which is paid on the procurement of services and goods during the phase of construction.
Neutral- Impact of GST on residential property
The impact of GST on the residential property sectors cannot be decided precisely as it is too early to comment. We have briefly analysed the effects of GST on 3 types of transactions of residential property, being, residential property leasing, sale of property which is under construction and sale of immovable property which is completed:
- Residential property leasing is currently not subject to service tax. This treatment is more likely to remain unchanged under GST Regime too.
- Sale of property which is under construction shall be covered under GST Regime. However, in present times it looks like there wouldn’t be much difference besides the fact being all forms of indirect taxes shall be clubbed under one single heading. Some benefit can be expected only if GST tax credit will be made available for developers for GST paid on services and goods.
- The sale of immovable property which is completed will in no way be impacted by GST as these transactions are outside the ambit of GST. On these transactions, stamp duty shall be made payable.
To conclude it, we can expect the GST to increase(boost) the overall demand on real estate, especially on warehousing and industrial sector, due to impact on economy being positive overall. From the perspective of cost, more precision is required on various transactions on the applicability of GST tax credits. The developers must be able to get overall credit for various taxes paid on inputs if proper application of mechanism of credit utilisation is made. This will eventually lead to reduce the overall cost.
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