Stamp duty, property tax may stay out of GST

Definition of goods may be changed; amendments to Constitution likely

Real estate may not fully come under the goods and services tax (GST) because the stamp duty and property tax can stay out of its ambit, suggests a presentation prepared for the GST Council.

While work contracts for under-construction houses are under the GST, the stamp duty and land are out of it. India is one of the few countries where sales of under-construction houses are greatly in vogue. Generally, it is constructed houses that are sold in other parts of the world.

Also, bringing real estate in the GST net even partly may require a constitutional amendment, which could take time. The issue here is the lack of clarity about the concept of immovable property.

According to sources, the presentation, prepared for the GST Council in Guwahati on Friday but could not be placed due to paucity of time, says the Constitution does not define immovable property.

Section 2 (52) of the Central GST Act defines goods tomean every type of movable property other than money and securities. Section 2 (102) of the Act defines services to mean anything other than goods, money, and securities.

Where will immovable property fit in? To resolve this issue, the presentation suggests that goods should be defined to include movable and immovable properties, and services should be defined to include anything other than goods.

However, experts say this would require a constitutional amendment. One can’t change the definition of goods to include immovable property under the GST Act only, because there are goods defined in various other Acts as well, say, the Sale of Goods Act and Indian Contract Act, a tax expert points out.

Similarly, land is a state subject, and a constitutional amendment is required to bring it on the central list, he says.

Abhishek Rastogi of legal consultants Khaitan & Co said immovable property would have to be defined in such a way that it came under the supply rules.

The presentation is also unsure on whether the Constitution is required to be amended but certain that changes in the GST laws would be, sources say. The presentation suggests checking with the Union law ministry and attorney general about constitutional amendment. The presentation will be made at the next Council meeting, slated for early January.

The other issue is the stamp duty. The Indian Stamp Act, 1989, is a central law; rates on land and buildings are decided by states. The stamp duty varies across states in the range of 3-10 per cent. Even in a state, these might vary, as in Maharashtra. Gujarat, Karnataka, Kerala, Rajasthan, and Tamil Nadu have their own stamp laws.

Also, the stamp duty is with reference to documents conveying titles on land and buildings; the GST is on supplies and sales of properties. These are different aspects of taxes, the presentation says.

The presentation says that states should be left free to levy the stamp duty at rates decided by them. Besides, the structure of the property tax should continue as it is, the presentation suggests. It is the local municipal authorities that levy the property tax.