However government should consider extending this concessional GST rate of 8% to overall real estate projects as there is a huge gap with 12 % GST on project revenue being higher than 18% GST paid on construction linked product and services resulting in higher GST collected from buyers though the input credit benefit eventually gets passed on to the buyer by developer. However by applying 8% rate on GST to be collected from the buyers, developer shall be collecting GST equivalent to its output GST for construction only resulting in lower capital requirement at buyers level thus boosting demand.
Another important point is stamp duty regularisation which varies across states from 3% to 6% along with GST in a state like Maharashtra makes the tax liability of an end user very high to the tune of 12% plus 5% i.e. 17% vis a vis pre GST tax liability of 10.5%. Thus, to promote affordability government should offer concessional GST rate of 8% and stamp duty to the tune of 3% making it reasonable for end user to purchase homes, thus bringing back the demand which has slumped due to heavy taxes levied on end user.
In addition to this, government should make real estate investments via REIT more attractive by reducing the capital gain tax window of 3 years to at least 2 years so it can compete with investment products like mutual funds , stocks etc giving boost to investments in real estate projects.
Recently the SRA body announced the deferred payment plans to developer for fungible premium with interest rate of 15% per annum and flexibility to pay it in three installments. Other civic bodies too should extend this benefit of payment of premiums in installments at affordable interest rates enabling developers to channelise major funds in construction at large thus resulting in speedy project deliveries.
(Parth Mehta is Managing Director, Paradigm Realty)
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