GST on property: Things you should know
Being pegged as a revolutionary tax reform since Independence, the Goods and Services Tax (GST) is likely to eliminate the complex and ambiguous tax structure plaguing the country currently. To bridge the gap between the government, developers and consumers, Magicbricks orgainsed an event ‘Real Estate – The RERA and GST on property Era’ in New Delhi recently.
A single indirect tax-structure regime, the move is expected to make tax collection seamless across India. With the Union government fixing 18% GST rate for under-construction properties with full Input Tax Credits (ITC) for the real estate sector but excluding the cost of land, here is a list of key takeaways from the new law:
Real estate will be taxed at 18%:as per
The government also allowed deduction regarding the land value equivalent to one-third of the total amount charged by a developer, thus, making the effective tax rate as 12%.The price of a property is an outcome of demand and supply dynamics, not taxes alone,” 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,”
Stamp duty and property tax to eventually be subsumed:
The charges keep by the Government outside the ambit of GST now because these are state levies while property tax is a municipal levy. “In many countries where GST has been implemented, it includes immovable properties as well,
Detailed returns need not be filed this year: KPMG Partner (Indirect Tax) Priyajit Ghosh says that the new law was a challenge on the compliance front and the government has agreed to take a lenient view for the first couple of months. “The government has said that a detailed return need not be filed by traders/businessmen only a summary return would suffice,” said Ghosh. Satish adds that returns can be filed in summary but individual transactions have to be uploaded in the system.
Teething issues inevitable:
Multiplicity of rates in the previous regime had created a lot of confusion.inflationary pressures and certain short-term adverse impact will make compliance difficult in the first 12-15 months. But global precedence says that GST has been beneficial,”
Easier redressal of taxation issues:
After implementation the GST, some tax issues will become easier to handle as there would be no overlapping jurisdiction between the Centre and states with regards to levies on services and goods.Kapoor added that making real estate transactions in the transition period will lead to ambiguity on how will ITC be calculated when the new law kicks in. “Post July 1, 2017, if an invoice for a unit has to be made, how will calculations 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,” asks Kapoor.
Unregistered vendors will be a headache:
Unlike in the past, the liability to pay taxes has been shifted from the provider of goods and services to the receiver, if he happens to be a registered person. Satish adds that any purchase from an unregistered dealer will attract a reverse charge on the recipient which adds to the compliance cost of the purchaser. “Post-GST rollout, many corporates may not prefer purchases from unregistered dealers,” says Satish.