Acche Din For Real Estate Sector ?
Real estate sector is among the most globally and dynamic known sectors in today’s world, this sector is been depended on various factors like location, area, tax, inflation, and many other factors.India is among the biggest real estate markets in the world. Indian Real estate sector consists of four major sub sectors named as housing, commercial, hospitality, and retail.
The growth of any sector depends on the demand for a particular product if demand increases the supply from production to increases.But in real estate, it depends on the growth of multiple businesses in various other sectors which will have the demand of offices for employees and in residential if there is enough number of buyers then only new projects are been developed.
However, there was been slow down in Real estate sector from 2008 because of the recession in the world.You would be thinking of the recession in a different country how would it affect the Indian Real estate sector.
Actually, most of the people who invest in the properties are NRI who were living in those countries which were facing recession so there was slightly downward from 2008.
But in 2017 Real estate sector in India saw some drastic change in rules and regulation in the hope of “ACCHE DIN”. Could you guess what happened in 2017? that affected the most to these builders in Financial way.
Think Think Think!!!!
Still not getting let me give a clue new taxation format for “ ACCHE DIN ”.
If you guessed the word GST then you are totally correct. GST was the thing which made these developers play from back foot.
RERA was also one of the factors through which policy of doing business change a lot. Developers were having a really tough phase because from the year 1991 the way of doing business was the same but in 2017 it all changed.
And the most common Rule of survival in business is to Adapt to the changes according to the market, Give consumers what they want.
But developers are still waiting for “Acche Din” to come for them. Despite being many changes in the policy on a regular basis in the favor of Real estate sector it has still not got the charm that it was having in previously.
In Earlier Stage, GST on the Real sector was 18% with an Input tax credit benefit to developers. Which was later brought to 12% for bringing down the prices of house in the hope for some business growth “ACCHE DIN” in this sector. And it was a good step, it really helped to think that they can now invest in properties.
Later government made many changes in stamp duty rules too by which Mumbai property buyers would be paying 6% percent of Stamp duty. Let say there is an agreement done on a property worth of ₹50 Lakh and Value according to ready reckoner is ₹40 lakh so stamp duty would be paid according to the price which Higher.
After it, there was an exceptional case which has been related to stamp duty and due to this case, stamp duty on old houses had been removed. Before 1980 most of the properties were bought didn’t have registered it with the government it means no stamp duty was paid by most of the people. Stamp duty offices had been fining the property owners who have not registered previously with government through stamp.
It was a costly procedure with a lot of time consumption for present property buyers.
Overview of Case which led this rule to in action :
A lady had a posh 3,300 sq ft apartment at Napean Sea she had inherited this house from her father legally. They bought this apartment in 1979 an agreement was performed on stamp paper of ₹10 then. And at that time agreement was been done on stamp paper of ₹5 so this agreement was not been registered.
For ₹38 crore this flat was been auctioned and buyer for this flat was Mr. Vijay Jindal and when he tried to register the flat the stamp collector refused to register the new agreement reason for the denial was not the property is been not registered previously. And with the penalty and on the basis of current ready reckoner rates for stamp duty was around ₹2 crore.
As the property was auctioned by court buyer directly approached Bombay HC to bear the stamp duty money through seller but the seller refused.
Going through facts figures hearing in courtroom Bombay High Court came with Judgement. Current buyers are not Present buyer not responsible to pay stamp duty on previous transactions.
Read the decision carefully you will find that in those days instrument was performed and stamp duty was never paid. So the current buyer should not be affected for previously done mistakes in the form of Unstamped deals from others.
And later in 2019 Feb, 5 percent GST on real estate on houses under construction was introduced for “ACCHE DIN”.
In the 33rd Good Service Tax ( GST ) Council meeting, Arun Jaitley the Union Finance Minister and the state counterparts admitted to bringing the GST rate on under-construction houses in the normal category from luxurious category and bringing it down to, 5 percent GST on real estate from 12 percent.
And GST on affordable flats too will be brought down from current percent to 1 percent. GST would not be imposed on real estate properties which have been issued the completion certificate at the time of sale.
This new rates would be applicable from 1st of April 2019, this date is been finalized with the government in order to work in detail for making rules and regulation in such a way that a huge number of people would be covered in it mostly who are purchasing the input and capital goods from the business or manufacturer who has been registered under GST.
Facts and figures :
Houses which will have a carpet area of 650 sq.ft in metropolitan cities and carpet area of 970 sq.ft in non-metropolitan cities would be considered in the affordable category but there is a twist this property would be in this category only if the price of flats up to ₹45 lakhs.
Mumbai, Delhi NCR ( Delhi, Gurgaon, Ghaziabad, Noida, Greater Noida, Faridabad) ,Kolkata Chennai, Hyderabad and Bengaluru will be considered metropolitan cities.
There is an estimation that there is almost 6 lakh home in the metropolitan city which has the status of under-construction, 32% of these properties are been priced below ₹42 lakhs.
GST council is also willing to take the decision on a small shop which are under the residential complex to get the tax benefit as a hope “ACCHE DIN”, mostly this decision would be taken on March 10.
The projects like Rajiv Awas Yojana, Pradhan Mantri Awas Yojana, Jawaharlal Nehru National Urban Renewal Mission, and any other housing scheme of any state government will draw the attention of 5 percent GST on real estate .
Projects like this, after offsetting ITC (input tax credit), Here developers would be not able to pay GST in cash. Now the developer will be having enough ITC in his/her account to pay output on GST.
These Council also decided intermediate tax on Development such as JDA(Joint Development Agreement), TDR (Transfer of Development Rights) and lease which are premium. FSI should be reliving on Residential property which are paying GST. The final detailed report would be presented by the committee in front of the GST council then it would be approved by them.
But why the government is bringing 5 percent GST on real estate on houses under construction ?
The government would be getting more benefits if there was 8% GST on houses
This is because the government wants to boom the real estate business “ACCHE DIN” which is been facing downward from the past few years, there are less number of investor from the past few years. The main reason for 5 percent GST on real estate is the cost of houses or properties which are high from the consumers perspective.
Normal consumer or buyers always want the good house but at a reasonable price but the market of real estate is opposite to it. So this initiative by the government is in hope to make Real estate industry more profitable under the GST.
The expert in real estate are relating this decision with government motto which is about Housing for all by 2022.
The deduction in GST tax can will help chase buyers to reduce their payout by 6 to 8 percent. These will lead to an increase in sales which will bring down the number of the unsold inventory and will lead the Real Estate industry toward some growth.
However, there is also the reason for which the government has planned this kind of taxation where they are bringing down the 5 percent GST on real estate. The government wants to reduce the direct cash transaction with the developer who hiding the extra income, they want people to do business within GST act.
But opposite to it know the Sad truth about GST rates for real estate have a look really “ ACCHE DIN ” came
Sad truth about GST rates for real estate : Where the GST of 12% will be reduced up to 5% on houses which are under construction and for affordable house GST rates for real estate would be 1 percent.The government has announced that there would be cut in GST rates for Real estate sector.
People are happy with the decision of government but the reality is it’s all about Numbers game. Yeah, you read the correct word Numbers game where our mind is manipulated by showing the numbers and hiding the truth behind it.
GST new price would be in effect from 1st of April, Let us first talk about how the business is been running then you would be able to relate with upcoming policy. Currently, the business is been running on the Basis of Input Tax Credit(ITC).
But what is ITC?
There is a concept on which is GST based which is Cascading of taxation.A developer has its cost too for making any property like labour cost, cost of materials whatever money is invested by the developer for all this things developer is also paying GST.
And while the developer sells the flat GST is been collected from their customers ( Input ) later the GST which was paid by the developer at the time of construction would be subtracted by GST rates for real estate Collected with Customer.
Then Remaining final amount would be paid by developers as GST tax to the government. So there is a huge Input coming to the Developer and only 2-3% of outgo (Tax paid to the government) of tax is been paid as net payment. This procedure was also the same when GST tax rates were 18% in Real Estate.
But according to the new policy ( INPUT BENEFITS ), ITC benefits which Developers were getting has now been removed and Developers now need to pay full 5% tax to Government which is been collected from Customers. These will be along with the GST payments developers has previously paid to all vendors while Construction of building materials and services etc.
From 1st of April scenario will be opposite to what you were thinking that reducing the GST rates for real estate up to 5 percent would reduce the pricing of new houses, but now developers would be having higher outgo( tax paid to the government ) than previous.
So recovering the cost and to be in profit developers would now raise the price of houses /apartments/flats and then on total price of the house the 5% percent “Reduced” tax will be applied.
Here comes the Numbers game, Customer will think that he/she has to pay just 5 % of tax on house or apartment which he/she is going to buy but they will not be aware that the total cost of the house has also been increased.
When GST rates for real estate came in existence its main intention was to benefits people who are paying tax comparable to their value to addition. But due to this kind of changes in GST policy, the government is taking GST to a different route.
Now take a look toward the affordable house slab where flats with 600 sq.ft with a price range below ₹45 lakh would be considered an affordable house. There would be very fewer flats which will fall under this rule because most of the metro cities rather than Mumbai would not be having flats under 600 Sq.ft.
Mumbai is a metro city which has flats with small rooms due to its high cost of flats but there is a twist considering 600 sq.ft for flats in Mumbai price for these flats would be more than 45 lakhs so they are unquestionably removed from the affordable house.
Take a look at ready reckoner, But what is ready reckoner?
The rates of the residential property, commercial and land, For a property or a area managed by state govt. These rates keep on changing in every year based on understanding of the govt price revision.
Price in Mumbai and sad truth about GST rates for real estate . Andheri , kandivali, malad, bhuleshwar, byculla, colaba, dharavi, fort, girgaon, lower parel, mahim, malabar and cumbala hill, mandvi, matunga,mazgaon, parel sewri, princess dock, salt pan, sion, Tardeo, and worli.
And for Non-metro cities, people are having or building houses in the area of more than 600 sq.ft because lands price there are not too high but they will not be considered in the affordable house, Again there was only numbers games.
This was the sad truth about GST rates for real estate.
and in 2019 March government brought new policy it is
No tax for affordable homes in Mumbai up to 500 sq ft
Affordable homes in Mumbai up to 500 sq ft would be not paying tax.
This waiver will be in effect from this year itself 1 Jan 2019.The chief minister of Maharashtra Mr. Devendra Fadnavis in the state cabinet meeting on this Friday gave the approval to the proposal.
This proposal will give benefits of tax cuts up to ₹17 to ₹18 lakh Affordable homes in Mumbai up to 500 sq ft .
This was actually a very smart move because elections are too near and the government wants to make happy to the people are who are in the real estate sector.
Earlier in last month, GST rates for real estate sector have been brought down up to 5 percent gst on real estate from 12 percent. And for an affordable house, GST was only 1 percent.
If you see numbers it is really big almost 85,00,00,000 sq ft would be not paying tax to the government.
This proposal was actually placed by BMC in front of state government for the approval in July 2017.
But what about residential properties which are above 500 sq ft?
The 2nd proposal which state cabinet approved is about giving the concession of tax to flats which are between 501 sq ft to 700 sq ft the tax concession will be of 60 percent.
This will be definitely beneficial for the people who want to invest in properties . This tax game is all about the square foot, you will pay according to the square foot now, people who are having a good budget to Affordable homes in Mumbai up to 500 sq ft will also go for flats which are under 500 sq ft there would be no tax on it.
No tax for affordable homes in Mumbai up to 500 sq ft .
These tax cut would help a lot to grow the real estate sector there are the list of projects for Affordable homes in Mumbai upto 500 sq ft like Projects name : DHARTI PRESSIDIO ,Vardhman Grandeur , J P Jeevan Heights , Sumukh Hills and many more…..
There was also more proposal which was approved like registered cooperative societies will be facing a tax cut in the development of properties on semi-government land private land.concessions in taxes and fees to promote self-redevelopment of registered societies on government, semi-government, and private land.
Societies who have self-development scheme will have total control over the construction and representative of such societies will get the benefit of Higher floor index and completion of projects should be within 3 years.
For growing these kinds for projects the government will bring the policy soon which help these projects to grow in a very rapid way and will provide loans at low-interest rates.
Work of anyone is never hidden we can say that we have not tasted yet “ACCHE DIN” .But we should also not neglect the fact that government is trying to bring “ACCHE DIN” for real estate.
Government is bringing new policy new rules regulation where both consumers and developers will be benefited they are serious about real estate sector and on regular basis they are trying to bring “ ACCHE DIN ”
What is your opinion Comment down below the thoughts !!!!