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Inclusion of Real Estate Under GST may Lead to Greater Transparency, more Regulation: Analysts

Inclusion of Real Estate Under GST may Lead to Greater Transparency, more Regulation

The inclusion of real estate in the Goods and Services Tax (GST) regime may prove to be a positive move for consumers who will gain from greater transparency, more regulation of the sector and possibly lower price on purchase of new property.

But, for developers who are hoping for a tax rate of up to 10 per cent, there could be some price pressure, as the GST Council could consider two rates — five per cent and 12 per cent for low-cost housing and other properties respectively.

“Currently, the GST rate on under construction real estate projects stands at 18 per cent. If this rate is also applied to the cost of land and on the sale of ready-to-move homes, it will seriously impact buyer sentiment,” said Anuj Puri, Chairman, Anarock Property Consultants. However, if the Council decides to lower the GST rate on real estate and subsume the cost of stamp duty and property registration, the adverse impact can be marginally mitigated, he said.

Positive for consumers
Pankaj Goel, Secretary, CREDAI – NCR, said if the GST Council subsumes the stamp duty and maintains a rate of about five per cent, it would be positive for consumers. “But if its revenue-centric, it could impact the sector,” he said.

Noting that the real estate sector witnesses the “maximum amount of tax evasion”, Finance Minister Arun Jaitley had recently said the GST Council will consider bringing it within the indirect tax levy at its next meeting on November 10 at Guwahati.

Analysts agreed and said the industry will be more regulated as the move will curb black money and prevent tax evasion.

“GST is the reality and each and every sector should come under it,” said SP Sharma, Chief Economist, PHDCCI.

“The sector is already being forced to compel with regulatory norms after demonetisation, implementation of the Real Estate (Regulation and Development) Act and pressure from banks to repay loans. GST is the next step in this,” said an expert who did not want to be named.

Long process
While States such as Jammu and Kashmir and Delhi have for long been supporting the inclusion of real estate in GST, analysts warn that it could be a lengthy process requiring a number of legislative changes in the GST Act as well as amendment to the Constitution.

“It is good that the government is thinking ahead and the debate on inclusion of the entire real estate sector has already begun. However, the legislative processes required to make it a reality will take time and the consensus-building process with States should begin soon,” MS Mani, Partner GST Deloitte.

The Thirteenth Finance Commission, chaired by former Finance Secretary and one of the key proponents of GST, had also suggested including real estate under GST.

“The real estate sector (both residential and commercial) should be included in the tax base and stamp duty levied by State Governments should be subsumed into GST,” the report had said, while recommending a threshold of ₹10 lakh to exempt small residential and business properties.

Source: TheHinduBusinessLine