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How Does GST Impact Property Scenario?

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How Does GST Impact Property Scenario?

Even though unsettling, people in India are giving way to new reforms hoping it will change their present condition for the better. The GST tax is the biggest reform since the independence and is likely to eliminate the current ambiguous and complex tax structure. Let’s look at the things you need to know about this indirect tax regime:

  1. GST at 18% for real estate sector

The government has revised the tax to 18% on a under-construction property. This includes 9% for state and central government each. The effective tax is 12% as the government has allowed deduction of land value equivalent to one-third of the total amount charged by a developer. S Satish, Executive Director, RSM Astute Consulting Group says, “However, in the new regime the quantum of ITC will be higher though overflow of credit is restricted. The price of a property is an outcome of demand and supply dynamics, not taxes alone.” Ramesh Nair, CEO & Country Head, JLL India adds, “Imposing GST on land would have just resulted in land costs rising further at a time when the government is pushing its agenda of affordable housing nationally.”

  1. Eventually, Stamp duty and property tax to be subsumed

At present, the stamp duty and registration charges are outside the ambit of GST. This is because they are a state tax while property tax is a municipal levy. Satish points, “In many countries where GST has been implemented, it includes immovable properties as well.” It is a wait and watch situation.

  1. Detailed returns not required this year

KPMG Partner (Indirect Tax) Priyajit Ghosh said, “The government has said that a detailed return need not be filed by traders/businessmen only a summary return would suffice.” According to him, the law has its own challenges when it comes to abiding by it and thus the government is ready to take it easy for a couple of months.

  1. Teething issues inevitable

As per Gulshan Homez’s Deepak Kapoor rates in the previous regime were really baffling. He says, “Teething issues, inflationary pressures, and certain short-term adverse impact will make compliance difficult in the first 12-15 months. Tina Rakyan, director (Finance), Hines India adds, “But global precedence says that GST has been beneficial.”

  1. Easier redressal of taxation issues

With the elimination of overlapping jurisdiction between Centre and State, some tax issues will become easy. Ghosh elaborates, “Seeking redressal of a taxation issue would be far easier because in the new regime the same rule would apply to everyone.” But Satish adds that issues related to classification, composite and mixed supplies can arise.

  1. Difficult transition period for developers and consumers

Kapoor questions, “Post July 1, 2017, if an invoice for a unit has to be made, how calculations will be arrived at? If a customer wants to buy a real estate product on July 1, what should I tell him? Should I tell him that I am selling you my real estate but the actual price will be revealed after 3 to 6 months when I get my ITC details.” There will be a lot of ambiguity before things settle down.

  1. Unregistered to registered vendors

Unlike the past, the liability to pay taxes has shifted from provider to the receiver. Satish explains, purchasing from an unregistered buyer will attract reverse charge on the recipient which will add up to the final cost of the goods or services. Satish says, “Post-GST roll out, many corporate may not prefer purchases from unregistered dealers.”

Also Read: Ministry Of Urban Development Merge With Ministry of Housing And Urban Poverty Alleviation

Regulations

373 Maharashtra Cities To Fall Under PMAY Scheme

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The state of Maharashtra has added 232 cities to the existing 142 which makes it 373 cities under the Pradhan Mantri Awas Yojana Scheme (PMAY).

The officials at the housing department feel that this step will aid the government take up more projects under the PMAY scheme.

Sachin Kulkarni, Builder shared his concerns over the lack of coordination between the department in executing PMAY projects. He said, “This is a good sign. However, the PMO’s seriousness in promoting HFA is diluted by the time it reaches the authorities. Apart from collecting application from interested beneficiaries, nothing has moved on the ground in urban centres. I hope that this initiative moves on fast track”.

Maharashtra CM Devendra Fadnavis recently states that the in order to create more housing stock the state’s Slum Rehabilitation Authority scheme be brought under PMAY so that it can receive the subsidy to create more affordable housing. He clearly mentioned that the government intends to create more housing stock and it was taking various initiatives and making policy changes for it.

Also Read- Affordable Housing To Get A Boost With PMAY’s Scope To Be Extended To Private Lands

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Regulations

Real Estate Sector May Fall Under GST What Does It Mean For Buyers?

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One after the other the real estate sector has witnessed massive policy and law changes in its systems. Nonetheless, the tide has not passed yet. The GST council will take up a proposal to bring it under the uniform nationwide levy.

As the industry is still recovering from the RERA Act, the finance minister, Arun Jaitley said that there is a strong case to include real estate in the new indirect tax regime. He said this last week and also mentioned that GST Council will discuss it in November.

At present, the home buyers are paying 12 percent GST on under-construction properties. This percentage includes two taxes which are stamp duty and registration. The rate of which varies in each state but GST will make them uniform.

Santosh Dalvi, KPMG India partner (indirect tax) said, “If the entire real estate is brought under GST, they would have to abolish the stamp duty and we don’t know how the government plans to compensate the states for their loss.”

The stamp duty with registration and GST comes to approximately 18 percent for under construction properties. He further said, “So, it’s important to look at what rate it will be taxed at. We can then look at consumer prices”.

While agreeing, Bipin Sapra, EY partner (indirect tax), added, “It’s going to be a test for the government”.

Developers also pay taxes on raw materials. However, unlike other businesses, they don’t get any tax refunds through input credit. GST taxes every stage of the business activity to better compliance and compensates for it by permitting refunds.

Anuj Puri, Anarock Property Consultants chairman, said “By including real estate under GST, builders can get a fair amount of input credit, helping bring down costs,” He added that it would make homes cheaper for buyers.

According to Sapra, it will depend on the tax rate applicable.

Niranjan Hiranandani, co-founder of Hiranandani Group said, “Real estate under GST ambit means consumers will only have to pay one final tax.” He stated that with the commencement of RERA it brings transparency and GST would reduce the burden in terms of taxes payable while buying the home. He concluded, “Not only will this create positive sentiment but it should also boost actual sales”.

Also Read: Affordable Housing Is The Changing Face Of Indian Real Estate

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Regulations

Home Buyers Will Be Covered Against Builders Who Are Going Bankrupt

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In a move to protect home buyers from builders declaring their bankruptcy, the Insolvency & Bankruptcy Board of India (IBBI) has amended rules which make it necessary for any company to showcase how they have dealt with interests of all stakeholders. This is directed towards companies like Jaypee Infratech and some of the entities of Amrapali Group.

The regulator has informed about the revised rules last week. This will ensure that banks and other creditors do not get away by protecting their interests at the expense of others who are impacted by the action.  Banks are part of the creditors’ committee. They become an important decision-making body after a company is admitted for bankruptcy.

An expert bankruptcy lawyer said, “The change in the rules has plugged a gap as flat buyers are of the view that there is nothing to protect their interests.”

According to the new law that was enacted last year intends to speed up the resolution process in a period of 180 days, with a possible extension of 90 days. This will be done by appointing insolvency resolution professionals who will take charge of the company’s operations and prepare a plan. As per the law, an information memorandum will be finalized if the creditor’s committee is willing to take applications from other interested companies to take over the company.

The insolvency experts say that the law providing for the plan binds corporate debtor (the company) and its members, employees, guarantors, and creditors, other stakeholders involved in the resolution plan. However, there are no obligations mentioned in the rule to give any treatment to the stakeholders other than the financial creditors (banks) and operational creditors, which includes vendors and others who may have dues.

The National Company Law Tribunal, based on the comfort provided by the revised rules, will choose the final resolution plan based on bids that are received. The lawyer further said, “The tribunal will not clear the resolution plan without giving notice to all stakeholders and the flat buyers can raise objections at that point of time.”

Also Read: Tanvi Group Fail To Deliver Homes And Declare Bankruptcy

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