The much awaited and debated Goods and Service Tax( GST) has been passed for implementation. Its effect seems to bring cheer and sadness together, depending on the sector you are in. In India real estate is one of the fastest growing sectors and also is one of the most taxed sectors. Real estate has constantly reeled under a multitude of taxes including stamp duty, service tax and VAT among others. This has led to various disputes between builders and the government and even at times between the consumer and the developer. The proposed GST will hopefully reduce the confusion of taxation norms in the industry. But in order to fully understand let us consider the various heads that GST would have an affect on.
Under construction Projects
In the GST model of taxation under construction projects will be viewed as works contracts and hence will be seen as a service supplied. Thus, allowing the sale of under-construction property to be under the purview of GST. But there is still not clarity on the consideration sale of land. The ambiguity on GST for under construction property is in the consideration of whether it’s applicable for input side or outside. There might be a double taxation problem if GST is applied to procurement side then the output side will be subjected to VAT and service tax. This might result in litigation while applying the GST consideration. So there is a requirement for more clarity on this matter.
Similar to today’s service tax not being applicable on constructed projects, the GST might hold true as well. On constructed property the GST will not be applicable as sale of immovable property doesn’t fall under the definition of goods and services. The stamp duty and registration will hold good in such a sale but GST may not be applicable. Although GST will impact the input goods costs, it will have no effect on the output sale price. But the final price of the property for sale will depend on the rate of GST applied for goods used for construction.
Property constructed for leasing purpose
Service tax is currently not applicable for residential leasing. It is only applicable for commercial leasing and this might get translated even in the GST purview. Many industry experts opine that the GST paid by the builder during construction of the property can be also treated as credits and be used against the GST that is due once the building is leased. There are many areas of ambiguity that the developers hope the GST will address. Today landowners give out land to developers under a joint development agreement. Now giving the land for development can be viewed as supply in technical terms but whether land can be viewed in this way is not yet clear. There are definitely as many advantages as there are disadvantages to real estate coming under GST. But without clarity on how this will apply and what will be the method of implementation, it is hard to predict the effect on prices and sector growth rate.
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