Home Loan: Homing In On Impact Is Tough

Looked at simplistically, the implementation of GST should help rationalize the tax structure and allow home developers to take credit for taxes paid that they couldn’t earlier due to the plethora of central and state taxes without adequate set-off mechanisms. A single GST rate of 12% will also make compliance far simpler. However, tax rates on services at present are 3% lower than under GST. What’s more, the rate of abatement allowed on the cost of land under GST will determine the extent of input credit benefit.

Different segments of housing may also see a varied impact. The afford- able housing segment might see a slight reduction in rates, but the luxury segment may not, as many of the in- puts might attract a higher 28% GST rate. Developers are thus a divided lot and still mostly less-than-certain on what the eventual impact on their costs will be.

Home financiers on the other hand, have it far simpler at a product level. While interest on loans is exempted from tax, there will be a nominal impact of a higher rate on service charges under GST. The rate will increase from the present Service Tax rate of 15% to an 18% GST rate. Payments towards all charges such as processing fees and other levies will now go up by 3%. Home buyers will also feel the pinch when it comes to finding a home. Real estate brokers will charge 3% more on their service fee from July 1. Home insurance premiums will also go up by 3%. Therefore, a lot of the one time costs associated with buying a house will escalate by 3%.

Given the barely nascent recovery in the real estate sector over the past few months, the implementation of GST will likely cause a pause, as both home buyers and developers try to assess its implications. However, another regulatory development that might drive demand for homes among a certain section of buyers is the move to make tenants paying rent of Rs 50,000 or more per month liable to deduct tax at source and file these details. The hassle of compliance might just drive many individuals falling under this category to consider moving into their own homes.

In a nutshell, therefore, while GST implementation holds promise of good tidings for home buyers, it is too early to call it.

(A marketing initiative by Open Avenues)

bankingconsumersfinancehomeloanmarkettaxes