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Here’s How Developers Or Brokers Can Be Ready For GST

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Here’s How Developers Or Brokers Can Be Ready For GST

Since inception of Goods and Services Tax (GST) on July 1, 2017, business houses across the nation, including real estate business, is still seeking clarity on how to conduct business. After GST, it is mandatory for every business operating in taxable supply of goods and services and having a turnover more than the threshold limits of ₹ 20 lakh to register under GST. According to taxation expert Priyajit Ghosh, Partner, Indirect Tax, KPMG India

, here are few things that developers can do to become ready for GST.

Figure Out The Impact On Existing And New Projects

GST rate of 12% and Service Tax of 4.5% needs to be calculated and compared with savings from removal of VAT, excise duty etc. The figures might vary from project to project depending on the construction stage. For example, savings might be less for substantially complete projects and tax rates will increase. It means GST rate of 12% needs to be compared against service tax rate and other taxes incurred by the developers which were not considered as credit and decide whether GST increases or decreased the final price.

Update Of Income Tax System

Developers, contractors and suppliers should update their IT system to generate GST complaint invoices at the earliest. The names, address, GSTIN and date of issue must be mentioned on every invoice, as well as quantity of goods and services provided along with applicable tax rates. Make sure that IT system captures relevant data for first filing during August and subsequent detailed filing in September.

Calculate Savings Accessible To Contractors

Contractors should pass on the benefits which were not there earlier and the same used to get added on to prices, adding up to the total pricing factor. So, to capitalise on reduction of taxes, contractors should cut their prices to the developers, which will also allow developers to pass on the benefits to customers.

Builder-Buyer Agreement

After the implementation of GST, under construction properties shall be taxed at 12%. The government has urged all developers and real estate companies not to ask customer to pay higher tax on instalments after GST. If any builder is found overcharging customers then they will be subject to strict action under Section 71 of the GST Act. Therefore, all contracts and agreements should be according to GST rules.

Other Charges And Expenses

The GST rate on different charges and expenses like base sales price, preferred location charges, EDC/IDC, transfer charges, development rights etc. needs to be determined as per GST. Moreover, VAT and service tax applicable on stocks also needs to be determined under the new rule. This will help developers to find out correct GST rate and tax credits paid under previous tax rules.

Educating About The New Tax

Developers should help contractors, suppliers and brokers to fully understand GST, so that everyone associated with real estate cycle can benefit from the new taxation rules. Government is already playing its part by helping concerned players and has agreed to be lenient for the first couple of months, so that everyone can grasp the situation properly. Government has said that developers don’t have to file a detailed return and can submit a summary return for the time being. As a result, in case of any defaults there won’t be any serious consequences.

Also Read: Dawn of RERA and GST Increases Demand For Ready-Possession Homes

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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