India’s dramatic tax reform may not impact home values after all

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Builders obligated to pass on tax credit benefits to property taxpayers

GST is the biggest tax reform since post-independence India. Harshad Rathod/Shutterstock

The Goods and Services Tax (GST) regime may not be as burdensome to home buyers as originally expected.

The tax reform, rolled out last week, may not have an adverse effect on the final customers of under-construction projects, Knight Frank India chief economist Samantak Das said. “For new projects, it is expected that base prices would be revised so that post GST, price value of homes remains the same as in pre-GST era.”

Billed as one of the most dramatic tax reforms since Indian independence, the GST regime consolidates taxation schemes imposed by central and state governments on their constituents and subsumes such indirect taxes as the Value-Added Tax (VAT) and service tax. Under the regime, all under-construction properties will be charged at 12 percent, excluding stamp duties and registration charges.

“Apparently, with the 12 percent GST, there is a difference of 6.5 percent on tax rates as compared to the pre-GST rate of 5.5 percent. But lot of efficiencies have been brought in through GST,” Das said.

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GST includes a clause on input tax credit, in which credits of input taxes paid at each stage of the supply stage must be made available in later stages of value addition. Under an anti-profiteering clause, builders are mandated to pass on the resulting benefit tax reduction to the final customer.

“We have talked to developers and they were trying their level best not to pass on any extra tax burden to home buyers,” Das said. “It is expected there will be no adverse impact on the buyers with the implementation of GST.”

Anuj Puri, former chair of Jones Lang LaSalle Residential (JLLR) India, expects GST to cut through the “Gordian knot” of complicated tax rates and structure in the country. “GST may not be instrumental in bringing down the prices of residential real estate over the short term,” Puri said. “However, it will benefit all the stakeholders of the residential real estate sector, as the perception of the sector will improve on the back of a simplified tax structure and accountability being fixed at every stage.”

New launches in the country’s eight major cities plunged 41 percent in the first half of 2017, the lowest in seven years, Knight Frank India reported.

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