Real estate sector sees input tax credit as game-changer

To ensure that manufacturers, developers and service providers pass on the benefit to the final customer, the government has included an anti-profiteering clause under Section 171 of the GST law (file photo)

The monsoon season is typically a lean period for real estate sector players, with the number of transactions slowing down.

However, this year, the sector is grappling with an additional factor: the rollout of the GST from Saturday, which requires players to become compliant with the mechanics of the tax reform.

The real estate sector says it is working overtime, and is in touch with all its vendors to ensure that they are GST-compliant and have the infrastructure needed for the transition.

“We have been in touch with all our vendors, service providers and contractors to get them to share their GST registration numbers with us. We are even assisting them with registration formalities and procedures to ensure that our supply and distribution is completely GST-compliant,” said Nibhrant Shah, Founder and CEO, Isprava, a luxury realty firm promoted by Nadir Godrej.

Companies that BusinessLine spoke to indicated they had been working months in advance to meet the July 1 deadline.

Dharmesh Jain, CMD, Nirmal Lifestyle says, “We are fully equipped for the GST regime. All internal functions have been orientated for GST, and we are geared towards complying with all the statutory requirements.”

The game-changer

GST will replace the multiple layers of taxes levied by the Central and State governments, and reduce additional tax burdens on consumers.

Anuj Puri, Chairman, Anarock Property Consultants says, “The biggest game-changer is the introduction of Input Tax Credit, whereby credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition. This makes GST fundamentally a tax only on the value addition at each stage.”

He adds: “This means that the end-consumer will only bear the GST charged by the last dealer in the supply chain, with set-off benefits at all the earlier stages.

“To ensure that manufacturers, developers and service providers pass on the benefit to the final customer, the government has included an anti-profiteering clause under Section 171 of the GST law. This makes it mandatory to pass on the benefit tax reduction due to input tax credit to the final customer.”

Anshuman Magazine, Chairman, India & South East Asia of real estate services firm CBRE, said, “The GST impact on the overall economy will filter through to the real estate, construction, and warehousing sector.” In construction, he noted, “inputs such as cement and ceramic, tiles, building blocks and bricks, prefab structural components for buildings among others are in the 28 per cent tax category; other components such as iron and steel are in the 18 per cent bracket. Work contracts addressing construction intended for sale have been placed in the 12 per cent category.”

Jaxay Shah, President, CREDAI terms GST as work-in-progress. “It will take developers one to two quarters to streamline their business for the new tax regime.The demand and supply scenario will then become clearer.”

Samir Jasuja, founder and CEO at PropEquity, said, “The input credit will be given on successful completion of each stage of the project. However, development firms need to pass on the benefits to consumers. Over the next 2-3 quarters, prices are expected to come down marginally. In the case of completed properties, developers won’t be able to pass on the tax burden, and to compensate that, they may increase the per-square-foot price.”

‘No impact on prices’

Surendra Hiranandani, CMD, House of Hiranandani, said: “The GST’s intent is to streamline the tax administration and bring more businesses in the tax net, it is unlikely to have any impact on property prices. We feel that the current rate of 12 per cent on under-construction projects might marginally bring down prices in the affordable segment owing to the input tax credits, but it is unlikely that similar impact will be felt in mid-priced or premium developments.”