Goods and Services Tax (GST) is set to get implemented from 1 July 2017. There are different GST rates prescribed for various goods and services, which may impact their cost. A homebuyer will have to pay GST at the rate of 12% to buy a home. We talked to Rajeev Talwar, chief executive officer, DLF Ltd and chairman, National Real Estate Development Council (Naredco), about how GST will impact home prices. Along with GST, we also discussed the implementation of Real Estate (Regulation and Development) Act, 2016 (RERA), and more. Edited excerpts:
How will GST impact home prices?
Real estate sector was heavily taxed and we welcome a single stable 12% GST rate, inclusive of the value of land and with full Input Tax Credits. We are of the view that the actual tax impact under GST would match or would be lower than the existing multiple indirect taxes on the sector. There are a few things where we are still awaiting clarity like whether affordable housing will remain out of the ambit of GST or not, as is the case at present for implication of service tax, or whether there will be any abatement for homebuyers.
If not home prices, will it impact the profit margins of developers?
About margins, again it will be too early to say. But yes, margins will get impacted because when the tax is lower, prices should come down. Maybe some margins do get impacted and maybe in some areas they will remain unchanged. It may impact different segments differently, like affordable or luxury segments, because you have to pay a higher tax on higher-costing products. So maybe in case of luxury housing segment, there could be some impact on margins. But then when you say luxury or the premium segment, then the premium there also exists to take care of it. So, I think, hopefully it will allow a fair play of market forces.
GST is scheduled to get implemented from 1 July. At the same time RERA requires all the ongoing projects to get registered before 31 July. How are real estate developers managing these two big reforms? Do you think a 3-month window to get the ongoing projects registered is less?
No, we don’t think so. We were preparing for all such statutory requirements for long. Besides that, there is enough computerization in India. There are enough digital initiatives. I am sure that the earlier the Act gets implemented the better it will be. It will give time for people to get accustomed to the new ways of working or to the new regime, whether it is in real estate or taxation. I am sure this will not pose a problem.
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