The Govt. has fixed a Goods and Services (GST) at a rate of 12% for work contracts, giving the impression of a higher burden on the construction sector. However, a close look suggests the actual tax incidence under the GST regime would be lower than the existing one, thanks to the facility of Input Tax Credit (ITC) on raw materials. Also, the new indirect tax regime will simplify the tax structure by treating work contracts only as services.
Presently real estate investors pay service tax and VAT on purchase of residential units when booked prior to their completion. There are also various elements of non-creditable tax costs like excise duty, custom duty, CST, entry tax etc. paid by developer on his procurement side, which is inbuilt into the pricing of units. All these tax costs add upto anywhere between 22%-25% of the unit price. Hence, it is widely expected the GST should reduce the construction cost and thereby aid in reducing the current level of prices in the real estate sector. Besides, GST will have its own share of contribution towards the GDP of the country which in turn will result a boost in the economy, hence boosting the real estate sector.