Changes a Home buyer will see post RERA
The Goods and Services Tax (GST) is one of the most revolutionary reforms in India after RERA, initially it will take a little time for us on the uptake as it has completely changed our tax system, but GST is expected to have a profound effect on India’s economic prospects and add significantly to India’s gross domestic product (GDP) and thus boosting the economy.
Now let’s find how GST is going to affect Indian real estate market and how GST is a part of Indian real estate? Well firstly, Ready-to-move projects and under construction projects will be affected differently under GST.
Let's see what alterations will be made under GST.
Primary Market (Under - Construction Projects):
Under GST, builders will now have to pass on the low tax burden to customers via decreased prices. In case of projects that have received Completion Certificate and are ready-to-move projects are not considered under GST for which builders might have to bear the tax burden.
The tax rate under GST for end customers is 12%. Well to be precise, the real tax rate is 18% but one third tax is deducted from amount charged by the developer (from land value). Sector experts says, the tax under GST for under construction projects will be 12 percent.
Builder won't get input set off credit under ready-to-move projects. Hence homebuyers of ready-to-move projects may face higher cost than under-construction projects.
Secondary Market (Ready - to - move Projects):
The projects which are equipped with completion certification (CC) and projects which are ready-to-move are not considered under GST. The full input set off credit that builders get under ‘new projects’ or ‘under-construction’ project will not be enjoyed by developers under ready-to-move projects. This might result in higher price for homebuyers under ready projects.
Builders might get benefits for projects which are at its beginning stage, but later on the builder will have to take up the tax burden for ready projects as government has exempted ready-to-move projects from GST.
Homebuyers will prefer to buy ready properties. Although there might be a little rise in price as the ready-to-move projects don't have input tax credit system. Builders are tax burdened for ready-to-move projects as it is not under GST. Since builders can’t pass on the tax burden so to compensate, they might quote high per-square-feet rate.
As experts says, the change of the price in real estate sector will completely depend on demand and supply.
GST for Home Loan EMIs:
What GST has for home loan borrowers?
Are you a planning to take home loan? Are you confused to take home loan when GST has taken up the whole market? So refer these below points and get a clear perceptive about home loan.
- GST on home loan is now 18% all over the country. As Value added tax (VAT) and service tax is now being waved off, but GST is significantly higher at 18% which will lead to rise in home loan for the borrowers.
- As the interest rates are unusually higher, all other lenders and banks will increase interest rate on home loans.
In case you decide to prepay the home loan before the tenure gets completed or change your lender, you are inclined to pay prepayment charges. This is when buyer opts home loan for fixed rate of interest.
Unlike fixed home loan rates banks cannot charge prepayment charges for floating home loan rates. If the cheque returns lender can charge you for EMI default for which GST will rise.
Affordable housing are not included under GST regime therefore affordable housing will be less expensive. As construction cost is essential under affordable housing, input tax credit will also be important. Affordable housing sector is relaxed as there is no tax to pay. As ‘Housing for all by 2022’ target is top on government’s checklist which will not be included under GST. It is said that there will be no tax for projects under GST which includes under affordable housing plan.
Indian Real Estate Sector covers good amount of India’s GDP and second-largest employer in India. RERA and GST at same time have blown the real estate market. Therefore as end consumers you can hope for things to work in your favour with these new reforms.