GST got launched in India on 1st July 2017. GST is none other than one single indirect tax for the whole nation. GST has brought a big change in the whole market of India. The basic idea behind GST was to unify India under one single tax i.e. one nation, one tax, one market.
This Goods and Services Tax in India is a comprehensive, multi-stage, destination-based tax that is being implemented on every value addition.
Basically GST is a (single) indirect tax on the purchase and supply of each and every goods and services, it has to be paid by everyone right from the manufacturer to the consumer. All are now under a single tax. In India we have two kinds of taxes which we pay to our government. One is direct tax under which Income tax comes, this tax is directly paid to the Government. While other is indirect tax, we pay these tax to different manufactures and the service providers from whom we purchase goods and avail services, these taxes go indirectly to the government. But after the implementation of GST many of these taxes which we paid earlier like VAT, service taxes, sales taxes all are combined and we have to pay a single indirect tax i.e. the GST. For GST the tax % slab has been fixed as-0%, 5%, 12%, 18% and 28%.
GST has affected every market and every aspect of economy in India including the Banking and finance sector. The Loan industry is even not left behind from the GST impact.
Impact of GST on Home loans
Banks/NBFCs and other financial institutions provide loans to enhance their credit growth and to maintain the cash flow. There are many loans such as personal loans, car loans, home loans, business loans etc. The common thing among these loans was the imposed taxes like the service tax, which used to be 15%. But when GST ruled out, the 15% service tax was replaced with 18%, which made it an expensive affair for the borrowers. Different loans have different charges and structure, but here we are going to discuss only for the Home Loans.
The impact of GST on the home loans is a bit difficult to understand. But it is cleared that the processing fee and other charges imposed on the home loan including the service tax will be now 18% applicable instead of 15%. Processing fee, as of now varies from 0.25%-1% of the loan amount along with service tax. So, let’s take an example of a loan amount of say INR 30 lakhs, for this amount the processing fee will be INR 7,500-30,000 + service tax of INR 1,500.50-5,750, this used to be earlier. The amount after combining comes is INR 8,500.50-35,750. With GST, but now with GST the same processing fee will be revised into INR 9,500-37,500.
As you have seen above, this is the impact of GST (goods and service tax) on home loans, but this is applicable only to the ready to move in homes. THe things will go differently when it comes to a home under construction. A home under construction comes under the slab of 12% of GST tax
Benefits of GST
- Removed various indirect taxes.
- Made it easier for the e-commerce and even for the common people to understand.
- GST will help in building a corruption free and transparent taxation system.
- GST is implemented only at the final destination based on VAT rule and not at different points (from manufacturing to retail shops or outlets). This will help in removing economic differences and will bring a common national market.
But, according to some Economist, GST in india will have negative impact on the market of real estate. As it added up 8% to the cost of homes (new). which has reduced the demand by 12% as of now.