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Commercial leasing, which constitutes a major portion of overall commercial property business in India, is to see occupiers’ cost going up by around 3 percentage points under Goods and Services Tax (GST).
“Currently, leasing of commercial property qualifies as a service, thus is subject to service tax. The service tax is applicable at the rate of 15 per cent which will be replaced by 18 per cent under GST, thus increasing the cost for occupiers by around 3 percentage points,” Joe Verghese, Managing Director, Colliers International India, told BusinessLine .
The implementation of the GST will increase the prices of commercial and residential products even though it positively enhances the country’s attraction as an investment destination.
“The positive impact will be through the demonstration of the government’s intent for delivering on its commitments of reforms aimed at encouraging greater transparency and ease of operation across all sectors,” explained Verghese.
“The industrial property and warehousing segments will be the primary beneficiaries of the GST system as operating efficiency is expected to increase. However, during the early stages of implementation, we expect costs to increase due to the negative impact on the supply chain through-put due to teething issues,” he added.
The biggest impact will the double whammy of RERA and GST at the same time on the residential sector. “Both this would seriously affect supply and lead to further increase in prices,” Verghese said.
While the intent is to streamline the tax administration and bring more businesses in the tax net, it is unlikely that GST will have any impact on property prices.
“We feel that the current rate of 12 per cent on under-construction projects might marginally bring down prices in the affordable segment owing to the input tax credits, but it is unlikely that similar impact will be felt in mid-priced or premium developments,” said Surendra Hiranandani, Chairman & MD, House of Hiranandani.
Recovery seen“Developers who did not get the benefit of ITC (Input Tax Credit) in the pre-GST era will now be able to avail it. Bothunder-construction projects and new project buyers are entitled to full ITC. It would also add another strategic push to affordable housing which, in turn, will drive the recovery of the residential sector,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.
“The intention of GST is to bring in efficiency in the entire tax system, the implementation of which will see lot of teething issues. But eventually it will pave the way for an extremely efficient tax system for the country,” he added.
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