How GST Impact on Real Estate?

Under GST, the treatment of rent is very clear. Landlords who are earning rental income by giving their properties for residential use will not be taxed under GST - thus there will be no GST on rent for houses. However, the GST rate on commercial property rent will be 18%, and it will be levied only by those who are earning more than Rs 20 lakh annually. If the landlord is unregistered due to the threshold limit, the taxable person has to pay GST on rent under reverse charge - at standard GST rate on commercial rent.

Goods and Service Tax impact on home loans

GST impact on the loan taker

Before evaluating the potential impact of GST on home loan EMI and costs, let us understand the components that are bound to be affected under GST. The main cost of taking a home loan is the interest payment on the principal amount. Similarly, any stamp duty levied in respect of documentation of home loan will also not change with GST, as stamp duty is not levied under GST.

GST impact on lender

Lender - In other words, banks and financial institutions that extend loans for real estate will receive ITC in relation to the services received. Also, purchased goods, which they can use against their GST output tax liability, which is good news.

Reduction in black money in the era of GST

GST will help cut down on the cash component in construction, as input will now have to be obtained from registered vendors to get the input tax credit. This would go a long way to reduce the black money component in real estate. In addition, the GST return process will ensure that both the supplier and the recipient of the goods and / or services are liable to disclose transaction details. Price, amount, GST rate etc.

FDI increase under GST

Investments coming from foreign shores are likely to have a positive GST effect - benefiting the NRI community, mainly due to a seamless-inclusive channel. Simplification of taxation is possibly the most positive GST effect on investment, which will also increase the confidence of the NRI market to invest in Indian real estate.

GST applicability on FSI / TDR

Floor Space Index (FSI) / Transfer of Development Rights (TDR) - Used by developers, are rights in land. As per GST law, not all immovable properties are excluded from the purview of GST, such as sale of land. There is a lack of clarity on whether FSI / TDR sales are to be considered "part of the land" - if they are, they too will stand out from the GST; If not, GST will be applicable.

GST on intellectual property rights

The GST law provides for the taxing of the supply of goods or services, or between both the concerned persons or different persons, without consideration. Typically in the real estate sector, multiple entities in the same group use single logos / trademarks without consideration, which can take advantage of GST, while no tax was previously applicable.

GST on barter Transactions

Many barter transactions are seen in the real estate industry. For example, giving free flats in exchange for 'development rights'. In the previous regime, barter transactions were mostly exempted from VAT, as a 'price' was not included. However, under GST law, all types of supplies such as barter, exchange, and so on, and the value of supplies will be taxed according to GST rules.