With Goods and Services Tax (GST), one of the biggest tax reforms of
independent India all set to be a reality soon, the real estate sector
is expected to get a boost. The good news for both, the developers and
home-buyers is that they will all stand to gain from this historic
financial move.
Industry experts feel that the move will help the sector in a big way.
Jaxay Shah, President, CREDAI, talking about GST and its possible impact
on the real estate sector, says, "CREDAI welcomes the introduction of
GST as a major reform since it integrates all central and state taxes
into one comprehensive tax regime for the entire country. Trade and
industry are major gainers of GST as it will eliminate multiple taxation
at the state and centre level, with consequent cascading effects.
However, for all other sectors, GST is their total indirect tax
liability; for the real estate sector, GST fixed at 12 percent, is only a
fraction of its tax burden. The real estate sector is exceptional
because the GST regime does not eliminate multiple taxation. Stamp duty,
levied by the states on all immovable property would continue to remain
in force, even after the implementation of GST. The additional burden
on real estate on account of the stamp duty aver ages between 5 and 8
percent of the value of the immovable property. Besides, the stamp duty
is payable on every transaction. Lastly, stamp duty is levied by the
state governments on circle rates or guideline values of the property,
which are arbitrarily determined and far in access of the value at which
the transactions take place."
Shah further explains, "Unless abatement for land is allowed, cost to
the end-consumer would go up. CREDAI would, therefore, urge the
government to minimise double taxation on real estate by treating land
as zero rated under the GST regime. The positive multiplier effect of
real estate on other industries would make up for the revenue loss and
the nation would be thankful for a tax regime consistent with the
objective of Housing for All by 2022."
Explaining the new reform further, Sachin Menon, partner and head,
indirect tax, KPMG, India elaborates, "The government has specified the
GST rate of 12 percent on the sale of under-construction properties
(including the value of land). Sale of land completed property is not
subject to GST. The primary inputs such as cement are taxable at 28
percent, whereas steel will attract a GST of 18 percent. Although
developers can claim full ITC (Input Tax Credit), refund of any excess
unutilised ITC is not permissible. While there is a positive impact due
to higher input tax credit, the inclusion of value of land for payment
of GST at full rate of 12 percent, is not in line with the industry
expectations."
Sharing industry inputs on the same, NAREDCO Chairman, Rajeev Talwar,
points out that GST is the biggest reform in the finance sector since
1947 and NAREDCO compliments the union and the state governments for
painstakingly working out this path-breaking reform, "We had submitted a
white paper the government with the detailed analysis of tax rates at
multiple points and their implications and are indeed happy that the
paper has been studied and considered by the GST Council. The
heavily-taxed real estate sector welcomes a single, stable 12 percent
GST rate, inclusive of the value of land and with full Input Tax Credits
(ITC). NAREDCO is of the view that the actual tax incidence under GST,
would match or be lower than the existing multiple indirect taxes on the
sector. The GST rate for work contracts, which will also be offset by
input credits, is expected to provide a seamless and simplified tax
policy. The 12 percent GST for construction of projects for sale to
buyers will be a much-required shot-in-the-arm to speed up the growth of
this sector."
Considered to be a game changer for the sector, NAREDCO president,
Parveen Jain, agrees, "There is no doubt that GST will be a gamechanger
for the Indian economy, including the real estate sector, since it will
subsume more than 6 major taxes and levies into a single consolidated
tax. Additionally, the unified tax regime will stop the unwanted
practice of double taxation, which hurts real estate and other sectors,
given its cascading effect with inflated prices for end-users. NAREDCO
is further hoping that the GST Council will also address issues related
to the affordable housing segment, which was exempted from service tax
in the previous tax regime."
Clearing the air about GST's effect on homebuyers, Menon avers, "As far
as buyers are concerned, continuation of stamp duty on the agreement
value with an enhanced GST rate will increase the cost of buying real
estate unless the developers pass on the benefit of GST to consumers.
Given that property prices are market-driven and seldom based on the
cost of construction, the expectation of any reduction for the consumer
who has already purchased the property seems to be far-fetched. The
government is expected to generate higher revenues from the increase in
the tax on the sector, especially due to the restriction on the refund
of excess input tax credit. Indian real estate is driven by consumer
demand and sentiments; unless the prices are brought to a realistic
level, an uptick in the demand curve may take some more time."
On a concluding note, Menon explains the trend citing an example of the
tax break-up for the consumers, "At present, a buyer, say in Mumbai, has
to pay the Maharashtra VAT at the rate of percent on the agreement
value. Besides VAT, the buyer also pays the service tax on the entire
consideration at the abated rate of 4.5 percent. Thus, the effective
incidence for the buyer is 5.5 percent (approximately) on the sale
price. Going forward, under GST, though he will not pay VAT Service tax,
nevertheless, he will be liable to pay GST at the rate of 2 percent.
So, clearly the tax burden for buyer will increase by around 9 percent
unless the same is compensated by way of reduced prices by the developer
due to the enhanced ITC."
Read all such Property News at CREDAI MCHI – Thane Unit website.
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