“Goods and Services Tax” would be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the Central and State governments. GST would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Real estate, being one of those sectors where repeated transactions happen on a regular basis, certainly requires GST. One of the major issues that GST can address is to present this sector with uniformity of tax practices. There have been countless instances where duplication and multiplication of taxes have somewhere dented the credibility of this sector. Presently, the homebuyers are under the pressure of two forms of taxes; service tax and VAT on the purchase of residential units when booked prior to its completion. There are numerous components of non-creditable tax costs such as CST, entry tax, customs duty, excise duty, etc. which is duly paid by the developer on its procurement side which are basically i
ngredients for the cost pricing of the units.
The Indian real estate sector is expected to grow and touch $200 billion by 2020. For over last one decade, housing sector itself has had a 5-6 % consistent contribution towards Indian GDP along with being one of the primary contributors towards employment generation. This sector can be broadly classified into four sub-sectors; housing, commercial, hospitality and retail. As the country moves towards urbanisation, this sector’s growth will be well complemented and the demand for housing and commercial divisions is bound to move north. The much awaited Goods and Service Tax (GST) is scheduled to be tabled in the on-going winter session of the parliament and if implemented it can prove to be a real game changer if formed and executed in a planned manner. Apart from GST, Land acquisition bill and real estate bill will be two key bills to look out for.
Will the long wait end?
The real estate industry eagerly awaits the GST to make a route into the system. One of the major expectations is the impact on construction cost. A uniform taxing mechanism would cut down the duplicity of taxes and thus the input cost. Mr. Ashok Gupta, CMD, Ajnara India Ltd correctly points out the issues. He says “with the dawn of concepts like hustling in service tax coupled with reductions and various mandatory charges collected by developers these days, highlights the importance of having a same tax base which can be only answered by GST. A single tax rate across the country will promote fair practices which will further encourage transparency and less evasion in the sector that supports in future growth of demand for real estate”. Seconding the opinion, Mr. Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz avers “Implementation of GST will basically work on three major elements for this sector; simplification of tax structure, reduction in construction costs and better transparency. Speaking about its contribution post acceptance, we are predicting a nationwide realty sector growth by almost 15-20 percent than projected in the course of next 5-7 years. There will be a quick reaction towards the sector by its customers as demand is bound to increase due to reducing costs and improving transparency in the sector that has been the hurdle making this sector suffer for long now”.
GST, being a formula to standardise taxes applicable differently in different states, will bring a relief for developers who are operating in more than two states. Highlighting its impact Mr. Kushagr Ansal, Director, Ansal Housing says “Now days, there are developers and builders who are constructing projects in different states and thus have to abide by the state specific VAT laws, service tax and corresponding compliances. The presence of several indirect tax components faced by the developers at present are a major cause that bring tax inefficiency in this sector. Thus, the acceptance of GST will finally help in restricting these problems and create a simplified tax structure which can be followed by developers not worrying about which region or state they plan the project”.
Is the Dawn visible?
GST seems to be a benefactor for the realty sector, provided a single tax rate gets followed and increase in the margins moves into the hands of the developers. Now whether this benefit will be rightfully passed on to the customers will be a question remaining to be answered, as this sector is driven more by market dynamics than costing principles. Although, fair tax practices will pave way for greater transparency which will allow real estate transactions to form an integral part of the proposed GST design. As of now, the onus lies in the hands of law makers as they discuss the bill in Parliament to make it a reality. Will the GST cross its biggest hurdle this time?