CS Deepak Pratap Singh

The Real Estate Sector is the fastest growing sector all over the world as well as in India. It is growing rapidly and we can access its growth by demand of affordable housing requirements, proposed development of new cities, initiatives of government for modern cities as “Smart Cities”. Owing a residence is dream of every Indian citizen and the demand as well as prices is growing   day by day. The Real Estate Sector has employed or given employment major workforce in the country and has contributed a lot in the GDP of the country.

The CREDAI ( The Confederation of Real Estate Developers’ Association of India) organisation’ report on economic impact of Real Estate Sector- provides that the sector will generate significant employment opportunities, with annual employment expected to increase from 7.6 million in the year 2013 to 17 million in the year 2025, thereby providing substantial social-economic opportunities for growth in the country.  The contribution of Real Estate Sector in the GDP of India will also double from 6.3% in 2013 to 13% till 2015.

The Real Estate Sector will provide a much awaited development opportunity to the country, the government has to think on its policies, laws and on regulations and provides sustainable support for development of this sector.

Real Estate Sector should also be included in GST  due to following reasons;

1. The Real Estate Sector is subject to multiple taxation scheme by the government, the Central Government has levied Service Tax on under constructed projects, the State Government are charging VAT and Composite Tax on various materials used in the construction, without benefit of Input Tax Credit. The immovable properties are charged Stamp Duty, at the time of registration of Sale Agreements. Thus theses taxes constitute almost 10% of the value of property sold.

The inclusion of Real Estate Sector in GST increases transparency and organisation in the sector.

2. Various ancillary industries such as cement, steel, brick, timer, fittings, building materials and many others are dependent on the real estate sector which constitutes a major part of Gross Domestic Product. However transfer transactions under this sector are not fully taxable, which has a spill over effect on other sectors and results in non-transparency and non-availability of credit.

If it will be included in GST, then there will be a chain of transactions which will improve the tax base and bring transparency.

3. Expenditure on housing constitutes a large part of Personal Consumption Expenditure in India and if real estate sector is kept out of GST then this will increase the RNR rate, because the base will get reduced in order to get same result. To increase tax base and to reduce RNR rate, real estate sector should be included in GST.

4. There are various duties are levied on this sector and there is no provision for claiming set off, which makes taxation in this sector hectic and lethargic. There is tax evasion due to this condition. Now including the real estate sector under GST, the revenue loss to the government will stop and set off facility will provide transparency and good taxation environment.

ON INTERNATIONAL FRONT;

Many countries are considering housing and construction services same as any other commodities or services and they have included the real estate sector under VAT/GST.

Under sixth directive applicable to European Union the sales and rental of newly constructed houses is taxable under VAT.

Canada taxes both supply and leasing of commercial land and buildings under VAT.

Australia taxes supplies of land, commercial properties and newly constructed residential properties under VAT/GST.

REAL ESTATE SECTOR UNDER GST;

The Real Estate Sector has been included in Goods and Service Tax in order to widen the base of indirect taxation and to derive investment, development and growth to the industry which is conduit for growth in large number of ancillary industries in the country.

The Task Force of GST has recommended ;

1. The Stamp duty as levied by the States on sale or transfer of immovable properties should be included in GST in order to facilitate Input Tax Credit and to eliminate cascading effect.

2. GST should apply to all newly constructed property (both residential and commercial).

i. If it is self-used the person who has constructed property

Let’s Consider an Example;               

X Constructed a House for Self Use;

Cost of Construction                         Rs. 20,00,000/-

GST Paid of raw materials                 Rs.  1,00,000/-

GST Rate @10%

Now GST on Rs. 20,00,000/-             Rs. 2,00,000/-

Paid on input                                        Rs.1,00,000/-

GST Payable                                          Rs.1,00,000/-

Suppose the house is sold;

Consideration to Mr. X                      Rs. 20,00,000/-

GST Paid of raw materials                 Rs.  1,00,000/-

GST Rate @10%

Now GST on Rs. 20,00,000/-             Rs. 2,00,000/-

Paid on input                                        Rs.1,00,000/-

GST Payable                                          Rs.1,00,000/-

Now in both cases credit should be allowed in respect of Input Tax Credit on raw materials unused in the construction of residential house.

3. In case of Rental Charges related to commercial and residential properties should be included under GST by giving set off facilities of GST paid on goods and services used in maintenance of residential or commercial properties.

4. If property has been constructed after the introduction of GST, the GST should be levied on the Resale Value and Input Tax Credit should be allowed in respect of the GST paid upon construction or purchase of the property after making adjustment for inflation.

5. If property has acquired before introduction of GST by the seller the GST should be levied on difference between the sale price and the cost of acquisition and cost of improvement thereto. Now in this case no Input Tax Credit will be allowed.

6. Now in new GST regime immovable property will also include land. Now in case of land, if used in construction of property, then land will be treated as input. The GST paid in respect of land will be allowed as Input Tax Credit in the same manner as other construction materials.

Thus it is important to include Real Estate Sector under GST, to increase tax bane and reduce RRN rate. Since this sector will provides various types of development opportunities in near future also. The need if implementation of GST for good selves of our country as well as World.

(Author can be reached at cs.deepakpsingh@gmail.com)

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