By Pankaj Bansal
The Goods and Services Tax (GST) in India is now on horizon as July 1, 2017 approaches. GST is an indirect tax throughout India, set to replace multiple taxes levied by the Central and state governments and is expected to be the decade’s revolutionary tax reform. It was introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill.
India is a country where one has to pay multiple taxes like Value added tax (VAT), CST, etc. Consequently, it increases the cost, hence making the economic activity complex. GST is expected to correct this anomaly. The implication of GST, however, may not be uniform across all states.
Together with RERA (Real Estate Regulatory Act), GST is expected to go a long way in ensuring transparency in the realty sector, which will be a win-win deal for real estate developers as well as for home buyers. Both offer comprehensive benefits to the sector. RERA aims to bring in a regulated system for the sector’s growth, GST aims at easing the overall business and making it hassle-free, be it for developer or for a consumer.
Both developers and buyers are in a dilemma till the time the GST Act is implemented. Buyers are hoping that the developers will pass on the tax benefits to them. Developers too have their fingers crossed, with the hope that GST implementation will not raise the cost of projects and scare home buyers away.
With GST’s present guidelines, luxury properties are expected to be impacted as the prices are slated to increase. The Government has not yet given complete set-off in terms of the land component. At present, service is charged on 30% of the property value, GST will be charged on the entire value of the property. The government, however, is working on this component.
GST will also affect renting of residential as well as commercial properties. It may happen that tenants may experience a hike in rent payment under the upcoming single tax regime, as there is no service tax applicable on residential properties in the existing system.
At present, the affordable housing segment is exempted from service tax and if under GST the current exemption continues, affordable houses may become cheaper. However, the clarification is still awaited. The sale of land and building has been kept out from the regime of GST. Steel products will be taxed at 18%. Electricity has been kept out of the ambit of GST. GST will cut down this percentage due to cloud storing of invoicing. The real estate sector will also benefit with new tax law having a positive effect on all ancillary industries.
If we see globally, a unified tax has proved to be beneficial for investments. Countries like Indonesia, Singapore and Philippines have been benefitting from GST since the 19th century. It is thus an opportunity for India to enhance its economy’s resilience and achieve a high growth trajectory. With the scale of the real estate sector, it can create a cascading economic growth across major business segments.
HIGHLIGHTS OF GST ON REAL ESTATE SECTOR:
# For cement there will 28% of GST , present rate is 30%
# Paints and varnishes will attract 28%. Existing rate is 26%
# For wall fittings and putty there will be 26% of GST
# Iron rods and pillars used in the construction of buildings is charged at the rate of 18% which is similar to the current average rate of 19.5%
(The above given data is based on the Maharashtra VAT, which may vary from state to state)
(The author is Director, M3M Group)