How GST and RERA improved transparency in real estate

How GST and RERA Improved Transparency in Real Estate

The real estate sector in India was historically plagued with issues like ambiguous pricing, delays in delivery, and a labyrinth of unclear regulations. However, with the introduction of the Goods and Services Tax (GST) and the Real Estate (Regulation and Development) Act, 2016 (RERA), a new era of transparency and accountability began. These landmark reforms have significantly changed how the real estate business operates, providing a breath of fresh air to homebuyers and investors alike. Let’s explore how these two reforms have reshaped the sector into a more transparent and consumer-friendly industry.

Understanding GST and Its Impact

Introduced on July 1, 2017, GST replaced multiple indirect taxes that were previously levied by both state and central governments. Before GST, homebuyers were often confused by various taxes like VAT, service tax, and a host of local levies. GST created a unified tax regime, streamlining the taxation process in the real estate sector.

For the real estate industry, GST meant clarity. The tax is levied at a fixed rate—5% for under-construction properties and 1% for affordable housing. This change ensured that all buyers were on the same page about what they had to pay. Earlier, buyers faced variable costs due to different state laws and hidden charges, but GST eradicated that. It simplified the once complex calculations and eliminated the cascading effect of taxes.

Moreover, developers benefited as well. The previous tax system made it difficult for builders to claim input tax credit, a mechanism that allows them to decrease the tax paid on inputs from the tax payable on output. With GST, the process became seamless, allowing developers to transfer benefits to buyers by reducing the price of homes.

Delving into the Role of RERA

The Real Estate (Regulation and Development) Act, or RERA, was implemented with the vision to address major issues in the housing sector. Enforced on May 1, 2016, it aimed to protect homebuyers and boost investments by making transactions transparent.

RERA mandates several requirements to instill confidence among buyers. For instance, developers are now required to register all projects with the RERA authority of the state. This registration ensures that every project is scrutinized, thereby curbing unscrupulous activities.

One notable feature of RERA is that it necessitates builders to disclose all project details such as site and layout plans, government approvals, and timeline for completion. This requirement helps buyers make an informed decision. They know exactly what they are investing in, which reduces the fear of fraud or deceit.

It also specifies that builders can only sell properties based on carpet area, and not super built-up area, as was the practice earlier. This regulation brought uniformity to property valuation and pricing, providing greater transparency to consumers.

Streamlined Processes and Accountability

Both GST and RERA introduced accountability into the real estate market, setting penalties for non-compliance to ensure adherence to guidelines. For instance, under RERA, developers need to maintain 70% of the project funds in a separate bank account, which can only be used for that particular project. This rule prevents funds from being siphoned off to other ventures, mitigating risks of project delays.

In a sector notorious for delays, RERA enforces strict penalties on builders failing to deliver projects on time unless the delay is due to unavoidable conditions. This accountability is crucial to bolstering trust among homebuyers.

With GST, the structural mitigation of tax evasion practices has been instrumental in promoting fair transactions and boosting confidence among stakeholders. The GST replaced a chaotic system and offered a clear framework, minimizing the scope for hidden charges.

Consumer Confidence Takes Center Stage

One of the critical benefits of these reforms is the increased confidence among homebuyers. Knowing that there are regulatory bodies overseeing real estate projects ensures a safer investment environment. People are now more eager to buy homes without the constant worry about hidden surprises or prolonged timelines.

Homebuyers can now track the progress of their properties through the RERA website, which hosts information regarding each registered project. This transparency assures buyers that they are protected by the law, thus establishing a stronger connection between developers and consumers.

The Role of Technology

The transparent atmosphere fostered by GST and RERA is further enhanced by the advent of technology. With RERA’s digitization efforts, buyers can access information online, making it easier to navigate through their home-buying journey. GST’s structure, already tech-driven, leverages online platforms for taxation and credit claims, enhancing efficiency and openness.

Technology plays a vital role in ensuring compliance and transparency. It simplifies processes, whether it’s about paying taxes under GST or registering complaints under RERA. Digital tools have bridged the gap between regulatory frameworks and their execution, creating a seamless experience for everyone involved.

Challenges and Evolution

While GST and RERA have paved the way towards transparency, the journey was not without challenges. Initial implementation of GST faced hurdles as stakeholders navigated a steep learning curve to understand the new taxation process. Similarly, the enforcement of RERA required state-wise adoption, leading to varied timelines for its rollout.

However, these challenges are part of a transitionary phase in evolving towards a more structured industry. As stakeholders become more familiar with these systems, their effective benefits manifest more prominently. Continuous cooperation between developers, consumers, and regulatory bodies is vital to addressing ongoing issues and enhancing these frameworks.

Conclusion

In many ways, the introduction of GST and RERA has harmonized the real estate industry’s efforts to provide reliable services and build trust among investors. By dismantling opaque practices and establishing clear guidelines, these reforms have reshaped the dynamics of real estate transactions, ensuring a fairer playground.

Homebuyers today are more informed and confident when making investments, knowing fully well that they are covered by robust legal frameworks. As technology continues to drive transparency and connectivity, the real estate sector stands poised to become an epitome of accountability and trust.