GST on real estate: Will it benefit home buyers and the sector?

Finance minister Arun Jaitley, recently pitched for bringing the real estate sector under the ambit of the Goods and Services Tax (GST). We examine the advantages that this would bring and the possible hurdles in implementing such a move

Beyond the political overtones, the economics of the existing taxation structures, do not indicate a smooth transition, if the real estate sector were to be brought under the Goods and Services Tax (GST). There are many issues and grey zones that need to be ironed out, before GST becomes a reality in real estate.

  • Land is a state subject and stamp duty and registration of properties, are a major source of revenue for states.
  • Combining the present rate of 12 per cent GST plus 5-7 per cent stamp duty, would make housing beyond the reach of many in India.
  • Offering a slab of five per cent and 12 per cent for low-cost and other housing projects, respectively, may sound buyer-friendly, but revenue sharing between the centre and the states would be a bone of contention.
  • It remains unclear, whether the inclusion of real estate in GST, would check tax evasion in the property market.

The finance minister Arun Jaitley, nevertheless, has announced that the issue of bringing real estate under the GST’s ambit, will be discussed at the next GST Council’s meeting on November 9, 2017. “The one sector in India, where maximum amount of tax evasion and cash generation takes place and which is still outside the GST, is real estate. Some of the states have been pressing for it. I personally believe that there is a strong case to bring real estate into the GST,” Jaitley said.

 

Advantages of bringing real estate under GST

The real estate industry stakeholders are elated with such a prospect, as the tax slab being discussed (five per cent and 12 per cent), is lower than the prevalent taxes.

Niranjan Hiranandani, president of NAREDCO, maintains that bringing real estate under GST’s ambit, will benefit the consumers who will only have to pay one final tax on the whole product. This will be a good thing to happen and the real estate industry will welcome the move, he says. “From the perspective of the home buyer, not only will RERA bring in transparency, but bringing real estate within the ambit of GST, should also reduce the burden, vis-à-vis taxes payable at the time of buying the home. Not only will this create positive sentiment but it should also boost sales,” said Hiranandani.

Jaxay Shah, president of CREDAI – National, adds: “GST is being levied on construction services already, while land is subject to stamp duty by states, at rates varying between 5-8 per cent. CREDAI believes that the burden on home buyers needs to be kept to a minimum, especially at this juncture.”

See also: GST on real estate: How will it impact home buyers and the industry

 

Opposition to bringing real estate under GST

However, such optimistic overtones, hinge on the expectations that GST in real estate will fall in the five per cent and 12 per cent slabs.

If the GST slab for real estate is finalised above 12 per cent, then, home buyers and developers may take a hit, at a time when property prices are already unaffordable in many places.

Moreover, the finance minister will also have to convince states to come on board, to create a consensus. This maybe particularly tough, in states where real estate transactions are major source of revenue for the state, through stamp duty and property registrations.

Some states, like BJP-ruled Maharashtra, have already raised objections. The Maharashtra government has opposed the inclusion of real estate in GST and does not want any decision in this matter to be taken in a hurry. The state government cited that it annually earns over Rs 20,000 crores, through stamp duty and registration charges.

Real estate industry stakeholders, hence, are watching the developments closely. They are conscious of the fact that if real estate is brought under GST, it could reduce multiple taxation and lessen the overall tax burden on home buyers and in the process, benefit builders, as well. However, the process seems far from easy, as it involves compensating the states for a major source of their revenue.

(The writer is CEO, Track2Realty)

 

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