The enactment of much awaited GST Law (one of India’s biggest tax reforms) from July 1, 2017 has sent a wave of positivity among the masses. National Real Estate Development Council (NAREDCO) also welcomes this goal of the government for consolidating taxes to boost country’s growth exponentially.
Founded 15 years ago under the patronage of Housing and Urban Poverty Alleviation (HUPA), Government of India, NAREDCO is one of the oldest and premium think tanks and association of realty sector in India. Mr. Rajeev Talwar, Chairman, NAREDCO, avers, “There is no doubt that the GST Law will single-handedly solve many of the challenges faced by the real estate of the country, push the sluggish sector out of its long slumber and lead to greater transparency.”
However, highlighting few problems, Mr. Parveen Jain, President, NAREDCO, says, “There are some unresolved issues emanating from the GST Law for the housing sector which need immediate attention. Being a responsible real estate body of the country, we have taken the charge to bring these issues into the notice of the government and for the same we have presented a detailed letter to the Prime Minister Narendra Modi, Arun Jaitley, Minister of Finance, Government of India, Devendra Fadnavis, Chief Minister, Maharashtra and Hasmukh Adhia, Secretary-Revenue, Government of India. We have also suggested some measures in the letter for resolving the issues.”
These challenges and solutions as highlighted in the letter are…
First, given the fact that the GST Law has proposed to tax sale of under-construction real estate property at 12% on the total sale value, in addition to the stamp duty levied around 6% on the sale value, the tax burden is likely to increase to18%, thereby, hugely impacting the cost of property. Thus, NAREDCO has made a suggestion that land deduction should be allowed under the GST law for taxability of the sale of real estate property and the GST rate for sale of under-construction property should not be more than 6% on the agreement value.
Second, it is a known fact that builders acquire land on long term lease for the purpose of development and construction of building on that land and later offer to give the constructed units on a long term lease for a consideration which is a lump sum amount of the premium. However, under the exemption made available under GST, only premium charged for any lease of 30 years or more to any industrial unit or plot is exempted. NAREDCO has made a recommendation that a similar exemption needs to be extended in all cases (residential/housing plots and others) for any purpose.
Third, under GST law, only sale of land and sale of building (i.e., after its completion) is exempted and grant of development rights is not included. NAREDCO has suggested that it should also be included under GST on the basis of the exemption granted for sale of land as it is well-recognised in law that property is a bundle of rights whereby the property can be transacted by transfer of any or all rights and development right is one of the constituent of such a bundle of rights.
Fourth, since the tax burden is likely to increase to almost 18% on the purchase of housing property, the common man may find it difficult to afford the additional tax burden. The increase in tax shall tentatively come out to be around 4% besides existing tax in affordable housing projects, so for the general benefit, NAREDCO has suggested that exemption should continue to be provided for affordable housing projects as well as single residential units.
Fifth, on one hand, GST is sought to be levied on a completed commercial immovable property renting, on the other hand, input credit on such construction is disallowed possibly on the presumption that after completion of construction there is no GST applicable. Keeping in mind the fact that one of the primary objectives behind the introduction of GST Law is to enable seamless flow of input tax credit across the value chain, NAREDCO has recommended that input tax credit of construction of property for renting/leasing purposes should be allowed.
Last but not the least, NAREDCO has also demanded clarity on taxability of PLC and parking charges.
NAREDCO keeping the general interest of real estate sector in the country in mind. Mr. Praveen Jain concludes, “If the above mentioned issues are also resolved, the impact of GST Law on the real estate sector would be far-reaching and positive in all terms.”
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