The GST in the real estate sector was introduced with the most important aim of subsuming taxes at several levels and creating a uniform structure. However, the current impact of GST on the under-construction property has increased the actual cost by 3.5 percent. Thus, it has resulted in only adding burden on the buyers.
The initial roll-out of GST at 12 percent was levied on building, construction, civil structure or with the purpose of selling to buyers, completely or in part. Land and immovable property have been exempted from GST.
While GST has under construction properties under it, the inclusion of entire value chain will mean that land purchase will come under GST instead of stamp duty that varies across states.
This may suggest, in theory, that there is a single nation with one rate of taxation for stamp duty and registration across all states. But will this actually happen or will it hike taxation burden as is in the case of GST on under construction properties.
This should be understood in reference to the implications and slow down that Indian real estate, in particular, has faced due to demonetization, GST, RERA and bankruptcy laws. Companies are still trying to work their way out of it.
These are obviously challenging times for the real estate sector as the government is implementing reforms. All the reforms have put the customers in the wait and watch mode. Nobody is making the decision to buy since many months.
There has been a delay in bringing real estate under GST because all the states did not agree on this aspect. Thus 12 percent GST was only levied on building, construction, civil structure or with the purpose of selling to buyers, completely or in part.
If we believe strong views of Finance Minister Arun Jaitley, to bring real estate into the GST – the logical interpretation is that the existing taxes and levies will get subsumed. So will the buyer then be able to avoid stamp duty, registration, cess and such other levies? If yes, how will the states be compensated and, as a result, will it result in a higher rate of taxation?
But with reference to Finance Minister’s statement, “As a result, the final tax paid on the whole product in the GST would almost be negligible.” One can see how it will be beneficial to the customers and buyers will only have to pay one tax, implies that the other duties, taxes, and levies will get subsumed. This would definitely be a welcome change for the buyers and have a positive impact on their mindset.
As for the industry, this will enhance the long-debated transparency in the taxation, reduce the number of taxes levied and introduce the one taxation across the country. No matter which side of the coin you see, there are obvious challenges. Whether all taxes and levies do get subsumed is something that we will need to wait and watch.
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