While the stage is set for the implementation of GST from July 1, with the passage of four GST-related Bills, suspense still persists as far as the inclusion of real estate under the new single-tax regime and fixing of rate of tax for this sector is concerned.
Delhi’s Deputy Chief Minister, Manish Sisodia, had recently made a strong plea to bring land and real estate under the GST regime to make the new indirect tax regime more consumer- friendly. According to Sisodia, there had been no absolute consensus on the issue at the GST Council meetings of the state finance ministers.
According to CREDAI, the apex body of real estate developers, real estate comes under ‘service’ under GST while from the point of view of stamp duty, it comes under fixed asset. For states property tax and stamp duty are major sources of revenue which they do not want to forego . The GST Constitutional Act also doesn’t provide for the inclusion of stamp duty under GST.
The proposed GST regime , in its current form, does not cover real estate. Moreover, the prevailing confusion is there because sector-specific GST rates have not been announced. Says Rashmi Deshpande, Associate Partner, Khaitan & Company law firm, “Though the four rate structure of the GST has already been announced, yet the industry is waiting for the specific rates for the sectors and segments to be announced”.
Will it increase prices?
There is an apprehension that GST, once applied to real estate, will push up property prices. But Arvind Subramaniam, Economic Advisor to Ministry of Finance puts at rest any such apprehension. “It’s a misconception that there will be price burden due to GST. The inclusion of land and real estate in GST, will keep current effective rates of taxation broadly unaffected. There could be increase in taxes at the final stage but because of the availability of credits on input taxes, the real burden of taxes will not increase”.
Prof. P.S. N Rao of Deoarment of Housing, Delhi School of Architecture also rules out any negative impact of GST on real estate. “On the other hand, the single, uniform nationwide tax structure will allow for reduction in cost for real estate production. There will be reduced cost due to avoidance of double taxation under GST which will put an end to number of indirect taxes and cesses, merging them into a single tax”. Besides, input tax credit will be available and as such there is a significant advantage to bring all real estate transactions within the formal system to enjoy credits.
Getamber Anand, National President, CREDAI, too , rules out any adverse impact of GST on real estate. “Currently, real estate developers have to pay taxes and duties like VAT, service tax and excise, Under GST, consumers will not get hit due to price escalation as the government has assured revenue-neutral rate for real estate”.
Real estate experts and rating agencies have a common view that the government will fix tax rate of 18 per cent for the benefit of the realty sector.
Urban Development Minister, M. Venkaiah Naidu has categorically said that his ministry had recommended to the finance ministry, not to tax real estate at a higher rate. He has also said that finance ministry has been told to continue with service tax exemption to affordable housing . And this will keep prices under check.
How it will help
Bringing land and immovable property under GST, will check the menace of black money in real estate and check artificial inflation of prices, especially when the government had come up with demonetisation to hit out at black money. Industry statistics reveal that post demonetisation, weighted average price of property in top 8 cities had declined.
Avneesh Sood, Director, Eros Group, also counts on the advantages of GST. “The single tax under GST, will come as a boon for the sector, which bears various kinds of taxation for land, property and work contracts at the level of central and state governments as property transactions are classified as value of goods and materials, value of services and value of land, besides levy (VAT) by state governments on the goods, which is not clearly defined in certain states”.
He says that GST is equally beneficial for commercial real estate as under the present system, the lost cenvat credit that adds to the cost to developer, can be availed, leading to price reduction. Rattan Hawelia, Founder & Chairman, Hawelia Group, says, “The variation in total quantum of taxes will depend on whether purchase of land would be measured as a source of input cost or not. In the long run, GST will definitely help the sector at macroeconomic level. However, its immediate impact on service tax currently being paid by homebuyer will get clear only with time. GST is surely a transparent and clear system as compared to the existing multiple layers of taxation”.
Over all, real estate being one of the biggest contributor to GDP and also being labour intensive, the impact of GST on real estate, has to be seen in terms of boost to economy and employment generation. Experts believe that GST implementation in real estate sector could well boost national GDP by 1.5- 2 per cent.