Impact of GST on Housing Cost of Purchase

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The GST Council has fixed 12% GST on finished houses. This will in the eventual analysis lead to an overall drop up to 5% in the purchase cost of finished housing units.

This can be explained by the legal and logical point of view that GST allows input-tax credit against the taxes paid on steel, cement, paint, and other items used in the construction of the housing unit. This input tax credit is allowed subject to the ceiling of 12% which is the GST leviable on the cost of the housing unit. Besides, the buyer will from July 1 onwards, will not be required to pay 4.5% of Service Tax, which is payable at present Gated community plots in bangalore

The following paragraphs discuss the arithmetic of the tax incidence:

Under GST regime, GST rates for cement, steel and paints are 28%, 18% and 28%. GST provide for input-tax credit, which the developer will claim, subject to the ceiling of 12% of the overall sale price of the finished product, which is the GST rate for finished houses. Additionally, the buyer will not be required to pay 4.5% as Service Tax of the erstwhile tax regime. So overall, the buyer is likely to gain close to 5% on the price of the house sites for sale in bangalore

Effectively, this will result in a drop of nearly 5% in the cost of purchase of a house. However, this is applicable to houses costing up to Rs 6000/- per sq. ft. For houses costing beyond Rs 6000/- per sq. ft., the developer’s margins are high and so the cost would not come down effectively.

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