A year after the GST kicked in, the middle class dream of owning a home has become costlier.
A cross section view of the GST and its implications among new home buyers, project developers and on the revenues of state and Centre reveal a higher tax rate and other anomalies.
The promise of Union minister Arun Jaitley that GST will make things 'slightly cheaper' may not seem to be applicable to purchase of homes now. For starters, the Goods and Services Tax probably chose to ignore a double taxation on home purchases.
On March 29, 2017, the GST Bill was approved in the Lok Sabha with four supplementary legislation- Central GST Bill, 2017; Integrated GST Bill, 2017; GST (Compensation to States) Bill, 2017; and The Union Territory GST Bill, 2017.
The intention was to make GST subsume other taxes like central excise, service tax, VAT and other local levies, to create a uniform market. To that effect, states too later passed their state GST or SGST law, allowing them to levy sales tax after VAT from all, except on a few restricted goods.
However, the states, Centre and the GST Council did not subsume stamp duty on property. An analysis of prevailing statewide stamp duty rates revealed that they range between five per cent in Maharashtra to seven or eight per cent in states like Tamil Nadu and West Bengal.
While this slip up in subsuming the stamp duties remained for real estate purchase, post-April 2018, a uniform rate of 12 per cent GST is also being levied on all property buys.
In February 2018, the GST Council said houses sold as 'affordable housing' and under the Pradhan Mantri Awas Yojana would be subject to a uniform GST rate of eight per cent, taking into account four per cent as Input Tax Credit on the purchase of land for these projects.
"Homes sold prior to November 2016, and for which full payment will be made after the April 2017 date of GST coming in, would still be subject to pay full GST on the entire transaction amount of the property," explained Gautam Thapar, CEO and director of NCR-based real estate firm, Thapar India.
This takes the effective tax rates on property purchase to 17 to 18+ per cent, vis-a-vis an effective property purchase tax rate of 11 per cent to 15.2 per cent prevailing in the pre-GST era, an analysis of the property rates done by investment firm JM Financials showed.
That, both Jaitley and his associate state finance ministers in the GST Council realise, is not what they would call ‘slightly cheaper’. But perhaps makes home buying slightly expensive and out of reach of the middle class or the EMI paying class.
Project developers, who had been affected already by a triple whammy of demonetisation, RERA and GST, are now in a fix as to how to liquidate their large inventories remaining with them from November 2016.
“Enquiries of home buyers picked up from November last year and currently prevailing at remarkable highs, but many are withholding their home purchase decisions as there is a valid demand on the government to subsume the stamp duty charges with GST,” said Amit Agarwal, CEO of the four-year home purchase and rental platform nobroker.com.
A recent report by SBI Capital effectively sums up the implications. “Post GST, it has been basically that states get to maintain their 11-12 per cent tax revenue (five to six per cent as stamp duty and five to six per cent from GST share) on property sale, while the Centre also earns about seven per cent tax revenue pie on all purchase,” said Soumyakanti Ghosh, chief economist, State Bank of India, in the report.