India: How Goods And Services Tax Affects Your Home Loan, House Construction, Renovation And Furnishing Budget

Finally, India is on the verge of witnessing a historic change from its current indirect taxation regime to the Goods and Services Tax (GST) regime with effect from 1 July 2017, with a grand ceremony on the night of 30 June 2017.

GST aims at eliminating the multiplicity of taxes and removing cascading of taxes which leads to a higher tax incidence on customers today. With an intent to curtail the inflation, the Government has taken various measures viz. finalization of rates which are aligned to existing rate structure for most items and introducing an anti-profiteering clause in the GST law.

Here are some impact areas on all household budgets right from purchase of a house to furnishing of the house and purchase of other necessities.

Impact on renovation / construction budget of your house

Currently, in a typical construction contract, contractor's price includes heavy incidence of Central Excise duty, Entry Tax, Central Sales Tax on material and Service tax on services used in construction which is ultimately passed on to customers in the form of higher prices.

The contactors shall have to pass on the benefits of lower tax burden under the GST regime to the customers by way of reduced prices as the contractors will be eligible for credit of GST paid on the material and services used in construction.

This benefit on account of GST will positively impact the budget on common households.

Impact on interior decorator services

Interior decorator services to get dearer by 3% since GST will be charged at 18% vis-à-vis current Service tax rate of 15%.

Impact on loan processing charges of banks

GST will be applicable on financial services, at 18 per cent vis-à-vis the current Service tax rate of 15%. Be ready to shell out more money as taking loans is going to get expensive.

Also, along with expenditure on upgradation of house, you might also want to invest in latest technology or home furniture. GST will have a bearing on the prices of such goods as well.

Impact on Electronic Appliances

Currently, the average tax incidence on most of the electronic appliances/ items is approximately 25-26% (including CST and other local taxes). GST on household electronic appliance like fridge, washing machine, vaccuum cleaner etc. has been fixed at 28% under GST. Likely increase in the tax burden of customer by 2-3%.

Also, electronic segment faces stiff competition with a lot of new players and less established brands who are mostly based in excise-free zones and are awaiting clarity on how the present excise exemption will work, post GST. Therefore, impact on the products of such players may be known only after a few months.

Impact on other items

Common household furniture, mattress to attract higher GST rate of 28%. Positive impact on LEDs and carpets due to a lower GST rate (please see below).

Impact on daily necessities

There should not be any inflationary impact on account of GST on daily necessities as most of the items viz. unprocessed cereals like rice, wheat, essential items like milk, vegetables have been specifically exempt from GST.

All in all, GST should impact the household budgets in a positive manner, not only from a rate perspective but also on pricing of various products, albeit in a long run.

*Rates mentioned above are basis the general rate available for such category of products and for illustrative purposes only. Actual rates may vary depending upon the specifics of a product and state wise VAT rates.

(Views expressed are personal)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.