Real estate prices to rise with GST

The real estate prices in Telangana and Andhra Pradesh are set to rise ranging from six per cent to about 10 per cent or more.

Source: Telangana Today, Dt: 03.06.17

Hyderabad: With GST, the real estate prices in Telangana and Andhra Pradesh are set to rise ranging from six per cent to about 10 per cent or more (depending on the specifications, locations, height). Currently, the tax incidence is 11.85 per cent including service tax of 4.5 per cent and VAT of 1.25 per cent and registration charges of 6.1 per cent.

With GST, the first two- service tax and VAT- will be subsumed and the new rate will be 12 per cent from the existing 5.75 per cent. The registration charge, which is a State subject, remains the same taking the total tax to 18.1 per cent. This apart, the rationalisation of taxes for building materials will add to the costs. With RERA also, the compliance costs will go up, which will be passed on to the customers.

According to C Shekar Reddy, real estate lobby body Credai former national president proposed GST is a double taxation on real estate segment. Under the GST, there will be a need to pay registration charges on land, apartment built-up area and undivided share of land. “The cascading effect of the registration charges will increase the tax burden to the customer.

To understand the increase in prices, consider a flat measuring 1,800 sft and priced Rs 4,000 per sft. The cost will be Rs 72 lakh. On this a service tax of 4.5 per cent is levied- Rs 3.2 lakh (or Rs 180 per sqft more than the base price). Then, it attracts a VAT of 1.25 per cent (Rs 90,000 or Rs 50 more per sft). The registration charges are 6.1 per cent (Rs 4.64 lakh or Rs 258 more per sft). The total tax is 11.85 per cent and Rs 488 is added per sft to the base price.

With all these, the net payable amount is Rs 80.78 lakh. The same property in the post-GST scenario will cost Rs 1.69 lakh more. The base price will come down Rs 3856 per sft instead of Rs 4,000 per sft and the total cost will be Rs 69.4 lakh now instead of Rs 72 lakh earlier. This fall in the base price is due less to less input tax credit which the builders get. With 12 per cent GST (Rs 8.32 lakh) and the same registration changes of 6.1 per cent (Rs 4.74 lakh), the total cost of the unit will be Rs 82.47 lakh, making its 2.1 per cent costlier than Rs 80.78 lakh in the pre-GST regime. “As the cost of per sft increases, the tax will increase,” he said.

To keep the price in check, the lobby body has been asking to subsume the registration in the GST or provide an abatement compensating the land value or reduce the proposed 12 per cent GST to five per cent. There would be no loss to the exchequer as a majority of the goods for construction suffer 28 per cent.

The real estate developers also want tax on cement and pre-fabricated structures, which are proposed to be put under 28 per cent, be reduced.

“In case of part payments, those made till June 30, will be collected as per the old rates and for those that will be made from July 1, will be as per the new GST rates,” said Jakka Venkat Reddy, general secretary, Telangana Builders Federation.

Developers used to purchase materials from other States and claim a benefit through the ‘C-Form’, the facility which has been withdrawn now. This will also add to the costs of the end-users, he said.

“The purchasing power of buyers in the real estate will come down. We are requesting the State government to reduce the registration charges,” said S Ram Reddy, Credai Hyderabad president.

“The prices in some States will come down as they were earlier paying 18 per cent and now need to pay 12 per cent. Also, the respective States have kept the registration charges lower. In Telangana and AP, the earlier taxes were 5.75 per cent, which increased to 12 per cent. The registration charges remain unchanged at 6.1 per cent,” said P Rama Krishna Rao, general secretary, Credai Hyderabad.