Table of Contents:
Introduction
The Goods and Services Tax (GST) is once again in the news, with the Central government recently introducing a two-slab GST plan.
Before we delve into the intricacies of the new plan and its implications for Indian businesses in general, and the real estate market in particular, let’s take a quick look at the background. The GST was rolled out in India on July 1, 2017, with the aim of integrating our tax system, which consisted of multiple central and state taxes (17 different taxes and 13 cesses, according to government figures). It created a common pan-India market, made compliance simpler, brought down taxes, and enhanced transparency.
Eight years later, at its recent 56th meeting, the GST Council, headed by Nirmala Sitharaman, the Union Finance Minister, approved Next-Gen GST reforms. The reforms, which will take effect on September 22, aim to simplify the GST structure further, thereby improving the lives of the common people and providing more ease in doing business. The main highlight of the reforms is the two-slab system, which has been welcomed with open arms by a lot of industries, including real estate and construction. Let us take a detailed look.
From four-slab to two-slab: The GST journey
When GST was introduced, it was an elaborate four-slab system — 5%, 12%, 18% and 28% — that also involved multiple rates, cesses and exemptions. The latest reforms aim to further streamline it with just two rates: 5% and 18%. As per this, a 5% Merit Rate applies to essential goods and services, while most other items are covered under the Standard Rate of 18%. A Demerit Rate of 40% has been imposed on luxury and ‘sin’ goods, which include aerated drinks, pan masala and tobacco, high-end cars, private aircraft, and yachts.
Ample Advantages:
Let’s look at some of the main benefits of the two-slab GST plan. The GST is considered to be the pillar of the country’s Indirect Tax system.
Daily essentials cost less
Reducing taxes on essential items makes them more affordable, thus boosting consumption. Items of everyday use, such as veggies, fruits, milk, etc., were already GST-free. Now, along with them, the exemption has been expanded to items such as notebooks, charts, maps, and also personal health and life insurance. Some of the items that fall under the 5% slab include footwear, medicines, small household items, packaged food, and other products of common use. The GST on household appliances and electronic items, such as TVs, washing machines, and laptops, has been reduced to 18% from the previous 28%. Restaurant, telecom, and financial services, motorcycles below 350cc, and cars below 1200cc also fall under this category.
A simplified system
The reforms have simplified the system by streamlining tax rate structures, reducing disputes, and easing compliance processes. Bringing down GST slabs from four to two will make the taxation clearer and easier to understand. While the GST on many items have been reduced, imposing 40% GST on luxury and sin goods will balance it out. GST rates apart, the reforms have also made the processes of registration and filing returns simpler. Refunds will now be made faster, and compliance costs have been reduced, which will ease the burden on businesses, especially Micro, Small, and Medium Enterprises (MSMEs) and start-ups. Their registration process has also been made seamless.
Supports growth
The latest reforms will enable the ease of starting and running businesses. This would add strength to the main economic sectors, facilitate their expansion and also enhance economic activity. The overall environment of stability fosters long-term clarity, growth, and better business planning.
Construction Industry Celebrates
The reforms are expected to give a boost to the real estate market and lower home prices in India. Let us check out in detail.
Lesser construction costs
Reduction of GST on construction materials and cement is poised to help the housing sector. While cement was previously in the 28% GST slab, it is now part of the 18% slab, which will make it less expensive. According to experts, this alone can reduce construction costs by 3% to 5%. Other crucial construction materials, such as marble and travertine blocks, sand-lime bricks, and granite, will now be subject to a 5% GST rate instead of the previous 12%. The same rates are applicable to bamboo flooring and joinery, wood pallets, and packing cases.
Better affordability
Overall, home prices and the cost of infrastructure projects are expected to come down if reduced construction expenses are passed on to customers. As per Anarock Research, the affordable housing segment (below ₹40 lakh) has taken a hit over the past few years, with the total number of flats sold dipping from 38% in 2019 to 18% last year. Reduced construction costs are expected to reflect in home prices, thus reviving their demand once again.
Brighter job prospects
With reduced prices leading to more demand, more projects and construction work will be underway. This surge in demand for real estate will naturally generate new jobs in construction and related businesses.
Relief for home buyers
The two-slab GST plan has added to the festive cheer in many sectors, including real estate and construction. While its impact may take some time to reflect in the market, it could provide much-sought-after relief to homebuyers who are dealing with soaring property prices. Now that home prices are going to come down, would you prefer buying or renting? Read this blogto clear your confusion.
FAQs
- 01. What is the Goods and Services Tax (GST)?
- To put it simply, GST is a Value-Added Tax (VAT) that is imposed on most goods and services that are part of the domestic consumption market. The GST is paid by consumers to the businesses, and the latter then remit it to the government.
- 02. While cement might get cheaper, are there more sustainable alternatives to it?
- Yes, there are many sustainable alternatives to cement, such as green concrete, ashcrete, micro silica, fly ash, lime, and mud, to name a few. Many reputable developers in India now incorporate sustainable practices into their projects to promote eco-friendly living.
- 03. Under what GST slab do paints, wallpaper, and varnish now fall?
- Wallpapers, paints, varnishes, enamels, various types of putty, and surfacing materials are all taxed at 18 per cent.
Sources
Money Control | CA Valley | PIB | Economic Times | CASHe | Investopedia | 99 Acres |
