The Goods and Services Tax (GST) Bill was approved in the Lok Sabha on March 29, 2017 with four supplementary legislations - The Central GST Bill, 2017; The Integrated GST Bill, 2017; The GST (Compensation to States) Bill, 2017; and The Union Territory GST Bill, 2017. The GST will subsume central excise, service tax, VAT and other local levies to create a uniform market. GST is expected to boost GDP growth by about 2 per cent and check tax evasion. The states will have to pass their State GST or SGST law that will allow them to levy sales tax after levies like VAT are subsumed.
The construction of a complex building, civil structure, or a part thereof, intended for sale to a buyer, wholly or partly, is subject to 12 per cent tax with full input tax credit (ITC), subject to no refund in case of overflow of ITC. In other words, residential construction services, will invite GST at the rate of 12 per cent, which will apply to developers selling new projects in Mumbai before completion of construction to the home buyers.
Beyond the political overtones, the economics of the existing taxation structures, do not indicate a smooth transition, if the real estate companies in Mumbai were to be brought under the Goods and Services Tax (GST). There are many issues and grey zones that need to be ironed out before GST becomes a reality in real estate.
• Land is a state subject and stamp duty and registration of properties, are a major source of revenue for states.
• Combining the present rate of 12% GST plus 5-7% stamp duty, would make housing beyond the reach of many in India.
• Offering a slab of 5% and 12% for low-cost and other housing projects, respectively, may sound buyer-friendly, but revenue sharing between the center and the states would be a bone of contention.
• It remains unclear, whether the inclusion of real estate in GST, would check tax evasion in the property market.
Real estate industry stakeholders, hence, are watching the developments closely. They are conscious of the fact that if real estate is brought under GST, it could reduce multiple taxation and lessen the overall tax burden on home buyers and in the process, benefit builders, as well. However, the process seems far from easy, as it involves compensating the states for a major source of their revenue.