GST @18% on realty transactions to be neutral for home prices: ICRA

NEW DELHI: The proposed goods and services tax (GST) rate of 18% for construction or works contract will be neutral on home prices, with some variation across states due to the divergences in current taxation practices, according to rating agency ICRA.

While a final decision on the rates is yet to be taken, the rating agency said the final rates to be notified would be the key determinant of the impact of GST on the sector. The GST Council in its third meeting this month proposed a four-tier GST structure, with a lower rate of 6%, two standard rates of 12% and 18%, and a higher rate of 26%. Services, which would include works contract, are expected to fall under the 18% slab.

“If the final GST rate slab notified for the sector is significantly higher than the current expectations, it could turn out to be a negative development for the industry which is already impacted by subdued demand and reduced pricing flexibility,” said Shubham Jain, vice president, ICRA. A GST rate of 18% would be higher than the current effective rate of value added tax (VAT) and service tax for sale of under construction property in most states. However, the higher tax rate is expected to be offset to some extent by a reduction in the basic price through better utilisation of input tax credits.

The GST paid by the developers for all inputs such as labour, materials and other services can be taken as input credit and offset with the GST payable by the end customer. “Under the GST regime, there will be better utilisation of these input taxes paid, which can lower the project cost,” said Jain.

Some states like Karnataka could see potential savings in the final cost to the end customer, whereas other states like Haryana and Maharashtra could see higher prices, according to ICRA.

Credits ET Realty

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