Keeping in view the large amount of tax evasion and cash generation in real estate, the Modi government is planning to bring the sector under the ambit of Goods and Services Tax (GST). Finance Minister Arun Jaitley has said that there is a strong case to bring real estate under GST and the matter will be discussed in the next meeting of the GST Council to be held on November 9 in Guwahati.
It may be noted that GST was implemented in the country from July 1 this year. One significant benefit of GST is that it replaces the previous multitude of taxes that the Central and state governments levied on various businesses and services, including real estate. Effectively, GST is based on the notion of ‘One Nation, One Tax’ and subsumes all previous forms of taxation, including central excise duty, octroi, commercial tax, service tax and Value-Added Tax.
Here we are taking a look at 5 significant ways in which bringing real estate under the ambit of GST will impact you:
1. A Standardized Regimen of Tax Rates and Structure: GST intends to put an end to the cascading tax structures that preceded it, make it easier for businesses to comply, put in place a standardized regimen of tax rates and structure, and be instrumental in lightening the taxation-related burden on consumers.
2. Benefits of Input Tax Credit: Probably the most significant development which GST introduces is the system of Input Tax Credit. “In this system, credits of input taxes paid at every stage of production or delivery of a service can be availed in the ensuing stages of value addition. In other words, GST only taxes value addition at every stage. For real estate buyers, this means that they will only pay the GST which is charged by the ultimate supplier of the product in the supply chain, and also get the advantage of set-off benefits of all the previous stages,” says Anuj Puri, Chairman, Anarock Property Consultants.
3. Benefits of Tax Reduction: The government is intent on ensuring that the final customer gets all these benefits, and has included in the GST Bill an anti-profiteering clause which clearly mentions that developers must pass on to the final customer the benefits of tax reduction accruing out of the input tax credit.
4. Simplified and Transparent Tax Regime: For property buyers, the biggest boon that GST brings is a vastly simplified and transparent tax regime as it applies to the acquisition price of a property. “All properties which are still under construction invite a GST of 12%, over and above stamp duty and registration charges. GST is not levied on completed projects, which means that ready-to-move-in homes do not attract GST,” informs Puri.
5. Tax on Completed Product will make it More Expensive: Real estate transactions can be classified into two parts from the GST perspective. One is the sale of property under construction, and the second is the sale of completed immovable property. The sale of property under construction is already under GST because instead of service tax, GST is applicable on all under-construction property now.
However, “the sale of immovable property is currently out of ambit of GST whereas stamp duty is applicable on all transactions. The stamp duty varies and is in the range of 4 to 8% in various states. The sector is reeling through the downward pressure since the past couple of years and most of the demand is under ready-to-move-in property. Further implementation of the tax on completed product is likely to make the product more expensive for end-users and may impact the demand adversely,” says Surabhi Arora, Senior Associate Director, Research, Colliers International India.