The implementation of the Goods and Services Tax (GST) is looked upon as a robust move to eliminate the haphazard tax structure plaguing the country currently. It is believed that GST will successfully establish a mechanism to make the existing system of taxation more organized and efficient. Majority of the real estate developers are certain about its multi-edged favorable impact on real estate sector. According to Jagmohan Garg the owner of Mera Baba Group, “Being a uniform indirect tax, GST will abolish the multiple taxation system, propagating the much-needed transparency in realty segment.”
As a matter of fact, the Union government has fixed 18% GST rate for under-construction properties with full Input Tax Credits (ITC) for the real estate sector (excluding the cost of land).
Jagmohan Garg of Delhi further adds, “The under-construction properties will be taxed at 18% which includes 9% SGST plus 9% CGST. Also, a deduction of land value equivalent to one-third of the total amount charged by a developer is allowed. As a result, this makes the effective tax rate as 12%.”
“However, in the new regime the quantum of ITC will be higher though overflow of credit is restricted. The price of a property is an outcome of demand and supply dynamics, not taxes alone,” says S Satish, executive director, RSM Astute Consulting Group. “Imposing GST on land would have just resulted in land costs rising further at a time when the government is pushing its agenda of affordable housing nationally,” adds Ramesh Nair, CEO & Country Head, JLL India.
Being state levies, the stamp duty and registration charges are not subjected to GST. “In many countries where GST has been implemented, it includes immovable properties as well,” says Mr Satish. However, the government is looking forward to include these levies in the ambit of GST.
According to KPMG Partner (Indirect Tax) Priyajit Ghosh, the new law has challenged the compliance front and the government has agreed to take a lenient view for the first couple of months. “The government has said that a detailed return need not be filed by traders/businessmen only a summary return would suffice,” said Ghosh. Mr Satish emphasizes that returns can be filed in summary but individual transactions are to be uploaded in the system.
Talking about the potential issues of GST, Tina Rakyan, the Director (Finance) of Hines India, said, “Teething issues, inflationary pressures and certain short-term adverse impact will make compliance difficult in the first 12-15 months. But global precedence says that GST has been beneficial,”
The issues related to classification, composite and mixed supplies, ITC, etc, are likely to crop up. Also, the unregistered vendors will have a difficult time coping up with the aftermath of GST. According to Mr. Satish, “Any purchase from an unregistered dealer will attract a reverse charge on the recipient which adds to the compliance cost of the purchaser. Post-GST rollout, many corporates may not prefer purchases from unregistered dealers.”
However, it is believed GST will help in redressing the taxation issues with ease. It will put an end to the common issue of overlapping jurisdiction between the Centre and states with regards to levies on services and goods. “Seeking redressal of a taxation issue would be far easier because in the new regime the same rule would apply to everyone,” explains Ghosh.
While everyone hopes for the best, only time will spill the beans and reveal the actual impact of GST on realty segment, in the long run.
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