GST finally rolled into Indian market
GST (Goods and Services Tax) has finally hit the market with effect from 1 July 2017 uprooting the old TAX procedure aiming to ease the burden for producers and the consumers. No doubt this new law will take time for each one to understand in detail and people may face the difficulty while imposing it.
GST is a continuous chain of benefits from the producer's point and service provider's point up to the retailer's level. It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available to be paid on the supply of goods 32 and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
The government pegged the GST on under-construction real estate at 18% that will be applicable on two-thirds of the value of the property. This will bring down the effective rate to 12% when calculated on the entire value, which was the rate announced last month after the crucial meeting of the GST Council. Therefore, the net tax incidence will remain at 12% of the selling price of a housing or real estate unit.
In current tax regime, works contract attracts a service tax rate of 6 percent which is a reduced tax rate under a special scheme known as the abatement scheme and a value added tax that currently ranges from 1 to 5 percent depending from state to state. While paying these taxes today, developers do not get a deduction of the input tax but under GST they will. The amount of excise duty and VAT they pay on cement or steel, no set off is available to them but under the new GST regime, developers will be able to get benefits on taxes.
Earlier, both developers and homebuyers received benefits under the abatement scheme (reduced tax rate under a special scheme). As per the current service tax regime, for those customers who are buying an under-construction flat, an abatement of 75 percent was allowed, subject to the flat being less than 2,000 sq ft and sold for less than Rs 1 crore, taking the effective tax rate from 15 percent to 4 percent. Also, if the cost of the flat was above Rs 1 crore and the size of the unit was more than 2,000 sq ft, the abatement was reduced to 70 percent and the effective tax rate to be borne by the buyer was 5 percent. States also charged VAT over and above service tax. This has now been done away with, say experts.
The uniform tax structure will improve compliance by developers. It will bring greater transparency to the sector and minimize unscrupulous transactions. GST will have more impact on home buyers, as developers with keep more margins in their hands, and will be able to restructure the cost of the products in favor of consumers.