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A Study of Impact of GST on Real Estate Sector in India

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Volume 9, Special Issue, March 2019, 6th National Conference On Technology & Innovation: Disrupting Businesses,
Transforming Market; G.H. Raisoni Institute Of Business Management, Jalgaon, India

A Study of Impact GST on Real Estate

Sector in India
Rajkumar Kankariya1 and Dr. Anil Dongre2
1
(Research Scholar, KBCNMU, GHRIBM, Jalgaon)
2
(Director, School of Management Studies, KBCNMU, Jalgaon)
Abstract: For Real Estate Sector, the implementation of GST is both disruptive and calming. Unlike an FMCG
product, neither does an apartment have an ‘MRP’, nor a ‘Best before’ date. The government hopes that with a
standard GST, prices should see a downward shift. But there are challenges for the Real Estate Sector with
respect to Indirect Taxes which need to be addressed by the Union Government. The GST Council through the
suggestions of Developers, Tax authorities and consumers has made changes in GST with respect to real estate.
The Council has announced the reduction in the rate of GST on Real Estate in order to boost this Sector. The
aim of the present study is to study the impact of Indirect Taxes on Real Estate Sector in Pre and Post GST Era.
Keywords: GST, Real Estate.

I. INTRODUCTION
The Goods and Services Tax (GST)—India’s biggest tax reform post-independence— was implemented on 1
July 2017. The new tax regime seeks to transform the Indian economy with its ‘One Nation, One Market, One
Tax’ principle by subsuming a host of indirect taxes charged at varied rates by the Centre and states, therefore
bringing uniformity in taxation across the country. Its primary objective is to simplify the complex tax structure on
the supply of goods and services. While this reform may have certain short-term negative impacts The earlier
indirect tax framework had challenges of multiplicity and cascading of taxes, apart from other issues/complexities,
both technical as well as from the perspective of ground-level practices by way of increased credits, reduced
prices, uniformity of pricing across the country, free movement of goods, etc., and the real estate sector should be
no exception. The key feature of GST is to remove the cascading effect of taxes by making credits fully fungible.
The objective is to ensure that businesses only act as a pass through for all taxes and that GST.
Until recently, the Indian real estate sector was experiencing slow sales, rising costs and stagnant prices since
the great recession of 2008-09 following demonetization. The sector has now been subjected to another wave in
the form of GST. While developers are taking all the necessary precautions and safeguards to prepare themselves,
and on the other hand consumers are waiting for the right time to sign a deal. Although it has been two years since
the implementation of GST, this paper attempts to shed light on impact of Indirect taxes on real estate in Pre and
Post GST regime.

II. LITERATURE REVIEW

FICCI (April 2013) emphasized GST to be a necessary condition for achieving double digit growth in India,
provided all the stakeholders are prepared for the change. Mawuli (2014) suggested GST to be less than 10% in low
income countries to mitigate the adverse effect of GST. Kumar (2014) highlighted GST’s role in eliminating
economic distortions by enabling the developing a unified national market with a common tax rate. Pinki and
Verma (2014) illustrated that GST would result in a number of benefits for all the stakeholders involved,
consumers, government at the central and state level. The study also highlighted robust IT infrastructure to be
imperative for GST to be implemented successfully. Sehrawat and Dhanda (2015) concluded GST to result in
increased output, employment and economic growth, owing to greater transparency. Caruso et al. (2016) suggested
GST to aid economic development of India and also lead to an increase in the GDP by more than 2%. Khurana &
Sharma (2016) point to the role of set offs available, as an advantage to the producers and consumers in the Indian
economy. Rizwana (2016) found GST to have a positive impact on the employment and economic stability, thus
improving the growth prospects of India.
The prior literature discusses GST as a concept and illustrates its benefits theoretically. The present study
attempts to fill this research gap by examining the impact of GST on the Real Estate sector in Pre & Post GST
regime. The study also provides a comprehensive view on the GST implementation in this context.

International Journal of Research in Engineering, IT and Social Sciences, ISSN 2250-0588 Page 135

http://indusedu.org
Volume 9, Special Issue, March 2019, 6th National Conference On Technology & Innovation: Disrupting
Businesses, Transforming Market; G.H. Raisoni Institute Of Business Management, Jalgaon, India

III. RESEARCH METHODOLOGY

RESEARCH OBJECTIVES
 To study the varios Indirect Taxes on Real estate in Pre and Post GST Regime.
 To study the present amendments in GST in with reference to Real Estate Sector.
 To study the impact of GST on various stakeholders of Real Estate Sector.
Hypothesis
“There is a significant impact GST on Cost of Construction, acquisition or Purchase of property.
Research Type: Descriptive Research
Data collection
The research is conducted on the basis of secondary data collected from the GST Act, Research
Papers, Working Papers, websites and other references etc.

1. The pre-GST taxability of Real Estate Transactions

When was tax

Nature
Rate of Tax required to be
of Duty
paid?
VAT* 1 to 4%
Service Tax 4.50% On Sale of
Under
Registration
0.5 to 1% Construction
Charges
Properties
Stamp Duty
5 to 7%
Charges*

* VAT, Registration Charges, Stamp Duty Charges vary from state to state. VAT was not applicable on
completed or ready to sale properties. Under the erstwhile indirect tax regime, Cenvat Credit on inputs
used for the construction of a building or a civil structure or any part thereof was restricted too.

2. Taxability of Real Estate Transactions under GST (Before 1st April,2019)

Rate Input
Particulars Applicability of Tax
Tax Credit
On Under Construction
Applicable as supply of services
Properties (For Homes
as per Schedule I of CGST Act, 8%* Available
Purchased Under Credit-
2017
Linked Subsidy Scheme)
Applicable as supply of services
On Under Construction
as per Schedule I of CGST Act, 12% Available
Properties (Other than above)
2017
Not
On resale properties Not applicable –
available
Not applicable. As per Schedule
Not
On Land purchase and sale III, sale of land is neither supply –
available
of goods nor services.
Works contract Applicable 18% Available
Composite supply of works
Applicable 18% Available
contract
Composite supply of works Applicable 12% Available
* NOTE: The homes purchased under the Credit-Linked Subsidy Scheme (CLSS) attracts 12%
GST rate. The applicable rate will be 8% after cutting the 1/3rd amount towards the cost of land.

International Journal of Research in Engineering, IT and Social Sciences, ISSN 2250-0588 Page 136

http://indusedu.org
Volume 9, Special Issue, March 2019, 6th National Conference On Technology & Innovation: Disrupting
Businesses, Transforming Market; G.H. Raisoni Institute Of Business Management, Jalgaon, India
CBIC has Notified Rules & Procedures for builders intended to take benefits of reduced rates (1 to 5 %
on sale of under construction flats commencing on or after 1 st April, 2019

On or before 31/03/2019 On or After 01/04/2019

Residential Residential Residential Residential
Buyers (Other Buyers Buyers (Other Buyers
PARTICULARS
than Affordable (Affordable than (Affordable
Housing Housing Affordable Housing
Scheme) Scheme) Housing Scheme)
Scheme)
Effective rate of GST 12% 8% 5% 1%
Whether ITC is available?
Whether ITC available Yes Yes No No

Cost of Land (A) 25.00 25.00 25.00 25.00

Cost of Construction (B) 14.40 14.40 14.40 14.40
GST on Inputs (at the rate 2.60 2.60 2.60 2.60
of 18%) (C )
ITC Available(D) (2.60) (2.60) Nil Nil
Total cost to the 39.40 39.40 42.00 42.00
Builder(E)
Profit Margin (F) 0.79 0.79 0.84 0.84
Sale Price of Flat(G=E+F) 40.19 40.19 42.83 42.83
GST on Sale Price of Flat 4.82 3.22 2.14 0.43
(H=G*Effective Rate)
NET Cost to the 45.01 43.41 44.97 43.27
Buyer(G+H)

3. Impact of GST on Buyers

Under the earlier tax regime, buyers had to pay VAT, Service tax, Registration charges & Stamp
duty on purchase of properties under construction. Also since VAT, Registration charges & Stamp duty
were state levies, prices of properties varied from state to state. Moreover, developers had to pay various
duties like sales tax (CST), custom duty, OCTROI etc. for which credit was not available. Under GST, a
single tax rate of 12% is applicable on properties under construction while GST is not applicable on
completed or ready to sale properties which was the case in previous law. Hence buyers will benefit from
reduction of prices under GST.

4. Impact of GST on Developers / Builders / Contractors

Under the previous tax regime, developers had to bear Excise duty, VAT, Customs duty, Entry
taxes etc. on raw materials / inputs and Service tax on various input services like approval charges,
architect professional fees, labor charges, legal charges etc. ITC was not available for duties like CST,
Customs duty, Entry Tax etc. This would impact the pricing and subsequently the burden was transferred
to the buyer.
Under GST, developers’ construction costs are significantly reduced as multiple taxes are
subsumed and due to the availability of input tax credit. Also, reduction in cost of logistics will be an
added benefit. Hence developers may see improvement in margins.
On the downside, developers have to do multiple calculations to arrive at ITC in order to pass it
on to the buyers. Hence, in most cases, they can pass on the ITC only during the final stages.
This lack of transparency on ITC, may affect the developers since buyers may resort to “wait and watch”
approach and defer buying decision.

5. Impact of GST on other Stakeholders

The impact on the allied services like labor, material suppliers, service suppliers etc. depends on
the increase or decrease in the tax levied on these goods and services. This will have a consequential
impact on real estate industry as a whole.

International Journal of Research in Engineering, IT and Social Sciences, ISSN 2250-0588 Page 137

http://indusedu.org
 Volume 9, Special Issue, March 2019, 6th National Conference On Technology & Innovation: Disrupting
Businesses, Transforming Market; G.H. Raisoni Institute Of Business Management, Jalgaon, India
IV. CONCLUSION
In Pre GST regime the Builder or Developer had to deposit several Indirect Taxes collected from customer. But
GST has reduced the cascading effect. GST has significant impact on real estate as it has increased the cost of
construction for the builders after its implementation. There was slowdown in the real estate sector after
demonetization and implementation of GST. RERA Act has also brought new challenges for the Developers. The
government is taking positive steps in order to boost this sector. The CBIC has notified Rules & Procedures for
builders intended to take benefits of reduced rates (1 to 5 % on sale of under construction flats commencing on or
after 1st April, 2019. Government is giving relief on affordable housings. Since, the GST is in young stage in India
so the positive impact of GST on real estate sectors will be seen over the period of time.

V. REFERENCES
Research papers & Websites
[1] 1.IMPACT OF GST ON REAL ESTATE AND AUTOMOBILES SECTOR: By TARUNIKA JAIN AGRAWAL & C.A. AASHNA GOYAL
ISSN(P): 2347-4572; ISSN(E): 2321-886X
[2] https://www.taxmann.com/blogpost/2000001797/is-real-boost-given-to-the-real-estate-sector.aspx
[3] https://cleartax.in/s/gst-real-estate-sector-affect
Books
[4] Taxmann’s GST (2018 addition) by CA Raj K Agrawal.
[5] Research Paper :Impact Assessment of Goods and Services Tax (GST) on Business-A Survey of Producer’s Perception Borhan
Omar Ahmad Al-Dalaien1 and Yousef Salem Yousef Al-Kasasbeh2, Mediterranean Journal of Basic and Applied Sciences (MJBAS),
Volume 2, Issue 2, Pages 18-25, April-June 2018.
[6] CGST Act,2017 and IGST Act,2017

International Journal of Research in Engineering, IT and Social Sciences, ISSN 2250-0588 Page 138

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