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.