India Tax Reform to Boost Property Market

A new tax reform is due to be made in India on 1st July that is expected to boost the Indian property market.

The new Goods and Services Tax (GST) is a uniform tax regime that will replace the current convoluted system of separate taxes at the national and state levels, and is likely to boost foreign investment in various sectors, including real estate.

At the moment there are many taxes on property purchases. Service Tax, and Value-Added Tax (VAT) are levied on the buyer at the time of purchasing new build residential property.

There are also many other tax costs, like excise duty, customs duty, CST, entry tax, etc that are paid by the developer. These tax costs are factored into the purchase price and can often be as much as 25 per cent of the overall price. All these taxes will be replaced by GST.

The GST tax in India applicable to property will be set at 12 per cent, and therefore is likely to reduce the cost of new build property in the affordable and mid-level real estate sectors.

Luxury property may be affected less, as the GST rate for construction and luxury goods are likely to incur a GST rate of 28 per cent.

The new GST tax is also ecpected to reduce the cash economy in construction, as to get input tax credit, inputs have to be sourced from registered vendors. This is expected to curb the practice of using black money in the construction sector.

The government in India has recently introduced many major reforms in the property market to make the sector more transparent.

Most notably the Real Estate Regulation Act aims to regulate the sector, and bring clarity for both buyers and developers. Under the law, all state governments must establish a State Real Estate Regulatory Authority, which buyers can approach when seeking to redress grievances against builders.

For overseas property investors looking to purchase in India, it seems that the government is going all out to make the property purchase experience a good one.