Home Finance How is the Real Estate Sector Performing under GST?

How is the Real Estate Sector Performing under GST?


GST has had its own setbacks and benefits over the last few years. Before GST, a heterogeneous tax system was practiced in India. The indirect tax system had a lot of disadvantages regarding the cascading and multiplicity of taxes. The GST scheme was implemented on July 1st, 2017. This scheme has changed the perspective of the Indian economy and aims to bring about a positive change in our country.

The real estate industry on the other hand, is one of the most vital aspects that creates India’s economy. Along with being one of the most highly employed industries, real estate contributes to about 8% of the Indian GDP. Therefore, GST has had a positive and negative impact on real estate, considering the elimination of all sorts of indirect taxes.

The highlight of the GST administration for the Real estate industry is the accessibility of Input Tax Credit (ITC) paid on data, capital resources and other input aids. Contractors were liable to pay various types of taxes such as Entry Tax, VAT, Central Excise, Octroi, LBT, Service Tax, etc.

The Pros and Cons of GST

The GST scheme offers the ITC eligibility on production and other procured services. This scheme helps in exempting inefficiency led by the cascading tax effects. The pros and cons of GST and its impact on the real estate sector is listed below.

The Estimation of Supply

Selling land is not liable under the GST scheme. The GST regime contributes to abide by 33% of the total agreement value. This regime concerns the significance of land for taxable transactions of real estate.

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The Effective Tax Rate

Before the GST regime, the standard tax rate for almost all goods was 26.5%. Now, products are in the range of 18% after GST was implemented. This tax law is the 101st Constitutional Amendment of India. However, the GST levy requires about 5% payable tax on the contract value.

The Anti-Profiteering

The anti-profiteering scheme provides authority to check undue price increases. It also focuses on issues concerning different companies to lower their rates. If it detects that your company hasn’t undergone and passed the GST advantages, it has the right to ask the company to reduce its prices. Moreover, it can even ask the company to provide a refund of their savings along with an annual interest of 18%.

The Decentralized Registration of GST

This scheme requires each developer to register under GST wherever construction projects are undertaken. It will be a difficult task for most companies to administer elements such as maintaining separate records for every state.

The Higher Registration Threshold

Previously, all businesses that had a turnover of 5 lakh and more were accountable to pay VAT. This limit was solely dependent on each state. The GST scheme, increases the threshold to about 20 lakh which cancels out the minor traders.

A few more advantages of GST include the implementation of composition scheme for minor corporations, convenient registration process, lesser amount of compliances, improved logistics rates and efficiency and proper regulation of the unorganized sector.

Some of the disadvantages of GST include the mid implementation of GST that has caused a financial strain for many companies, the registration, SMEs have to bear an increased tax burden and issuing of GST compliants is time consuming.

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What is the Impact of GST on the Real Estate Sector?

The Higher Rates when Purchasing Software

All Businesses are required to upgrade the ERP software to a GST compliant one or a GST software to stop their business from encountering any loss. Both these options require a hefty amount of money for training employees and even purchasing the software license.

The Increased Rate of Operational Expenses

GST has eliminated indirect taxes to provide one single fee for the entire nation. Most businesses are required to hire tax professionals for the GST compliant system. Therefore, small corporations can face significant setbacks due to this scheme as they will have to pay additional costs for the services of tax professionals.

The Online Taxable Platform

Most businesses are switching to the online method of paying tax. For a more in-depth and simplified understanding of making online GST payments, visit this blog, GST emSigner. An emSigner is required to apply your digital signature on the GST portal (gst.gov.in). You will have to download an emSigner software which will enable you to sign your GST registration application.

Although the start of GST might have been rough, the main agenda is to improve our country’s economy. Therefore, GST is fundamentally implemented to avoid setbacks in the long run.

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