After years of political gameplay, the Goods and Service Tax Bill seems to be becoming a reality. If and when passed, it would be independent India’s biggest tax reform. It seeks to merge most of the indirect taxes levied by the states and the central government into one. Many experts and reports agree that India’s economic growth will boost up with this much needed reform. It is speculated that India’s GDP would improve by at least 2% with this reform.
At present an array of taxes are levied included the value added tax (VAT), excise duty, custom duty, etc. It makes the whole process not only cumbersome but also drains resources. What complicates matters further is that all states have different tax rates or structure. Thus GST also aims to bring all states, union territories and the central government on the same tax platform.
So how would the Indian real estate be impacted by this landmark bill?
For starters, the biggest impact would be seen on new construction activity. Building materials would now move faster as logistics would improve owing to a single tax. The taxes the builder pays on those materials could also see rationalization with savings on construction costs. If these savings are passed on to buyers, it would be a big plus for the real estate sector.
However, all this hinges on the actual rate of tax that would be proposed. Hopefully the tax would not be more than what is currently being charged.
Most likely, if the GST bill is passed by the Parliament in the monsoon session, the new tax regime would come into effect from the next financial year, i.e. April 2017. So any effect that would be seen on real estate market should be seen in the long term range.
This would also have an incremental effect on the logistics sector as goods will now move freely thus creating a positive impact on quality commercial and warehousing property segments.
The next big effect on real estate would be the environment effect. Economy is going to witness a subtle boom with free credit flow, single tax regime and general improvement in business environment. This would be a boost for high ticket investments like real estate.
