In our ongoing series about the impact of GST on various commercial sectors, our next topic is on one of the most pivotal sectors in the country – Construction/Real Estate. The construction industry has seen a phenomenal growth in recent years, in not only cities but towns as well. Hence, GST is set to make significant impacts on this sector, so here’s taking a look at them:
- Transparency: GST is looking at lending transparency to the construction industry, with increasing accountability and mitigating unscrupulous transactions (black money). In the current scenario, there is a huge chunk of expenditure that goes unrecorded. GST will cut down on fake billings on the purchase side, that will further help in bringing down the cash component, hence, increasing a stakeholder’s confidence.
- ITC (Input Tax Credit): The current GST rate of 18%, maybe seemingly higher than the previous tax regime, however, now that local compositions are over, the supply of works contracts are fully eligible for ITC. However, earlier exempted services like the construction of roads etc. (infrastructure services), are now chargeable at a flat rate of 18%. Having said that, ITC benefits on raw materials, paid services, goods purchased should result in neutral tax incidence, Apart from this, the 12% tax on outward supply is not expected to see much cash flow, due to inward supply containing items at more than 12%, hence reducing costs for developers.
- Compliance: With the abolition of various cascading/indirect taxes, the issuing of GST permit will now be quicker, making room for an easier transference of goods, across states. The uniform tax structure will also help in improving tax compliance, thereby ensuring an efficient taxation system.
- Double Taxation: The earlier issue of multiple indirect taxes which went over 25%, will now be done away with. Hence, the problem of paying double taxes, across states by investors will now be mitigated.
- Stamp Duty and Registration: The only hurdle in the way, GST will not subsume stamp duty, with input tax set off having no provisions under it. No changes will be made in the registration charges/real-estate sale transactions, as well. However, the GST will subsume VAT and Service tax, which were earlier to be paid, on the sale of properties under construction.
GST is looking to bring in much more transparency to the construction industry and coupled with the free flow of credit expected, developers will see an increase in the overall margin. Also, the elimination of unnecessary paperwork and wastage of time, at state borders by suppliers will see a trickle down of benefits, in the long run. Tell us more about what you think about the Impact of GST on the construction industry, in the comments section below.