NEW DELHI: When Ratnesh Sharma was searching for his dream home, his first preference was ready-to-move-in apartments, which are excluded from the purview of Goods and Services Tax (GST), making them ‘affordable’.
However, the market reality was very different. The ready-to-move-in property price still remained out of his reach as developers already hiked the price by 12-14 per cent. The under-construction and ready-to-move-in properties have different tax treatment under GST. With an exemption on ready-to-move-in property, GST payable on the purchase of under-construction properties attracts 12 per cent GST with full Input Tax Credit (ITC).
In January this year, the government further reduced the GST for property under the Credit-Linked Subsidy Scheme (CLSS) where effective rate comes at 8 per cent after deducting one-third of the amount charged for the house towards the cost of land.
One of the major reasons for reducing price on a ready-to-move-in property was that it will reduce the tax burden of home buyers. But are consumers getting the benefit?
Not really, say realty experts.
According to PropEquity, because of no GST exemption on ready-to-move-in property, its demand has gone up substantially. As it attracts no GST, the sales of such properties have gone up by 26 per cent in National Capital Region, 34 per cent in Kolkata and 33 per cent in Bengaluru — resulting in price hike by the developers citing demand.
“There is appreciation in price of such property to the tune of 12-14 per cent. So the effective price for consumer remains the same,” says Ajay Singh, a proper consultant from 99acres.com.
This has damaged the sales of under construction projects. According to PropEquity, sales of under-construction properties a year away from completion, have dipped by 43 per cent in Chennai followed by 34 per cent in Hyderabad, 33 per cent in NCR, 32 per cent in Kolkata and Bengaluru, 30 per cent in Pune and 20 per cent in Mumbai Metropolitan Region (MMR).
“The sales of under-construction projects have still not picked up vis-à-vis ready-to-move dwellings. Now the home buyers have started looking at the track records of developers and going with the developers delivered rationally in the past,” says Surabhi Arora, Senior Associate Director, Research, Colliers International India.
Yet another reason is that the developers fail to pass on the benefits to consumers, he said. “In the coming months, it will be interesting to see how many developers will pass on the full benefit of the ITC to the consumers”, Arora added.