(G)overnment (S)implifies (T)axation

Posted by: at 8/04/2016 06:54:00 am

India 04 August 2016:
In a decision that will bring about clarity, transparency and uniformity towards taxation in the country, the much discussed and long pending Goods and Services Tax (GST) bill has been given a go ahead by the upper house of the Parliament. This bill was already passed through the Lok Sabha, and now with the Rajya Sabha passing it, a majority of states will have to approve the constitutional amendments then the Parliament will need to pass another bill to implement the tax, before the Presidential signatures come in and form it into an Act. Finally, a council for GST will be formed which will comprise of state and federal officials who will decide the final rate which may vary for different goods. GST, which will replace the several existing local and state taxes with a single tax, is anticipated to largely benefit the real estate sector of India. After its implementation, it will replace the current indirect taxes such as service tax and VAT along with other multiple taxes like CST, excise duty, etc.; which will greatly reduce the burden from the developers, the benefit of which will be passed on to the buyers of this sector. This in turn will help the demand to grow back and allow developers to score better in the sector. This effect will be visible soon on the economy as GDP will get a better contribution from the realty sector.

Manoj Gaur, President CREDAI-NCR & MD, Gaursons India Ltd. said, “The wait for a uniform tax structure in the country is finally over and real estate sector amongst others will benefit largely. A well-defined GST implemented for the country will bring about a relief for this sector and its customers. Commercial realty players will be hugely benefitted as all the lost Cenvat credit, which is in current regime a cost to commercial developer can be availed if GST is applied in a free flow manner that will also help in reducing costs. A much simplified single tax rate, reduced construction costs and better transparency in the sector will be much welcomed by the developers and its customers.”

Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz said, “GST is finally a reality now and the nation will soon witness its benefits, with real estate sector to make the most out of it. 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.”

Till now, the central and state governments levied various kinds of taxes for land, property and other kinds of work contracts with the transactions mainly categorised in three parts- value of goods and materials, value of services and value of land. Also, there is a levy by the state governments through VAT on the goods, but at the same time, several states such as U.P. does not charge this. This levy is not clearly defined in certain states, where Haryana is an example. The biggest benefit that GST shall provide will be, the reduction in under-construction properties. With a single tax regime, developers will get free input credits on GST paid for services and material purchased by them. If we move forth with the views of the industry experts, GST may boost the GDP growth of the country by 1.5-2 percent. Dhiraj Jain, Director, Mahagun Group avers, “Currently, the homebuyers of this sector 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 ingredients for the cost pricing of the units. With the GST now, a single tax structure will be followed which will allow reduction in costs for under-construction units. Developers as well as the buyers will make the most of this as reduced costs will positively impact the sentiments as well as demand for property.”

Although, there is a slight catch and a flip side to GST as well. If the GST is implemented on a higher rate, then the cost of under-construction properties will shoot up. If the rate is higher than the applicable service tax, which at present is 15 percent, this can turn out to be a dampener for the buyers as they will end up shelling out extra amount. Also, states where VAT is not applicable till now then GST will be charged. Thus, only if the GST rate is lower than 15 percent, we can forecast a better real estate scenario in future. “There is no doubt that multiplication of taxes will be curbed through GST, but the only question will be, what rate gets decided. The only dampener for this sector can be high GST rates, if above 15 percent gets decided; this will counterpoise any possible gains on incremental credits. Also, stamp duty is not proposed to be incorporated under GST and will thus continue to remain as it is at present. Therefore, decreased cost of construction will take place once a lower bracket of GST is applied as the developers will be liable to pay much less than today, thereby allowing cost of units to fall which will directly benefit the end users”, explains Vikas Bhasin, MD, Saya Group. Adding further, Vaibhav Jain, CMD, Rise Group states, “These are still early days to judge how much will the GST benefit real estate sector. There is a strong dependency on the allied industries such as steel, cement, IT and BFSI. A lowered GST rate, below 15 percent, will offer a huge benefit for the sector as not only will the cost of construction get curtailed, but there will be direct benefit while registering the properties as well. Also, there are developers and builders who are developing projects in different states or regions, specially tier 2 cities 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. A simplified tax structure would also mean that property prices would come down considerably enabling better affordability for people looking for property options in tier 2 and 3 cities.”

“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. GST will definitely prove to be a game changer for the Indian economy and provide a stimulus to the ‘Make In India’ initiative”, concludes Ashok Gupta, CMD, Ajnara India Ltd.


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