Ashish Kumar Madnawat


India is on the brink of GST. This is a major tax reform undertaken by the central government and it will be impacting the economy positively. If managed well, it has the potential to add at least 1% of India’s GDP growth. Capping the rate of tax is good. However,  if the rate of tax is increased at a later stage then it will prove to be tricky.

It is expected that once GST is implemented , It will help in having a clear and transparent taxation rule for real estate sector and could possibly improve compliance at the part of builders. One needs to keep an eye on the final rate because if it is more than the existing cumulative taxes. The overall cost to consumer will increase along with the cost of Stamp duty and Registration Charges.

Some of the key impact of GST on real estate sector,

1) Under Construction Property

Post GST implementation , Completed apartments shall not come under the ambit of GST as the buyer has already stamp duty and Registration charges on the transaction but for a flat on which part payment has been made, GST shall be applicable on the remaining amount.

Under the current regime ,Under Construction Property are treated as works contract in which  the land , goods such as cement , steel etc and service portion are involved. To tax its service portion , an abatement of 60% of the total cost is allowed which means net service tax liability would be 6% (15% of 40%). Beside this buyer also has to pay 1 % as VAT (Value added tax).

Further, As per Schedule II of the Model GST Law,

“works contract including transfer of property in goods (whether as goods or in some

other form) involved in the execution of a works contract”  shall be treated as “Supply of Services”

Assuming the rate of GST as 18%-20% the net tax incidence will be around 12%-13%.

2) Input Tax Credit

As per Section 16 of the Model GST Law, Input tax credit shall not be available in respect of the following :-

“goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;”

The bill treats construction activities as “work contracts” but is silent about guidelines on valuation of land and has kept the sector away from input tax credit.This could mean higher costs for the end consumer. Such restrictions in credits does not seems to be intent of the law makers and hence would need significant revision in the final GST law.

3) Stamp Duty

Exclusion of Stamp duty from the proposed regime is a setback to the home buyers as they have to pay Stamp duty in addition to GST. Duality of tax authorities at State and Central level is not a happy situation. If the state continues to levy stamp duty , other local taxes like Labour cess and municipal taxes , the result would be an increase in overall cost structure.

4) Registration

As per Section 19 of the model GST Law, Registration is required to be obtain for premises in each state from where supplies are made. This would include Site offices too. However , question arises as to whether registration is required where place of business is situated in one state and services relating to construction of immovable property is provided in other state(where there is no place of business)

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