From mul­ti­ple taxes to one GST on prop­erty un­der con­struc­tion

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - HT Es­tates Cor­re­spon­dent ht­es­tates@hin­dus­tan­

From July 1, the goods and ser­vices tax (GST) will come into ef­fect and it is ex­pected to trans­form the way business is done in the coun­try.

The tax will sub­sume all other taxes such as value added tax (VAT), cen­tral sales tax, ex­cise duty, en­try tax, and ser­vice tax that im­pacted the hous­ing sec­tor di­rectly or in­di­rectly, adding to the over­all cost for the buyer.

In the hous­ing sec­tor, VAT and ser­vice tax were di­rectly im­posed. While VAT rates var­ied across states, ser­vice tax was 4.5%.

In ad­di­tion to these taxes, the home buyer paid stamp duty on the reg­is­tra­tion of the prop­erty bought. The stamp duty rates vary from state to state.

For in­stance, in Pun­jab, the stamp duty was re­cently re­duced from 9% to 6%. The stamp duty is out of the GST regime, and the buyer will con­tinue to pay it.

The govern­ment has no­ti­fied the GST on real estate un­der con­struc­tion at 18% that will be ap­pli­ca­ble on two-thirds of the value of the prop­erty.

Last month, the govern­ment an­nounced 12% on the to­tal value of the prop­erty. Af­ter the no­ti­fi­ca­tion and ad­just­ment to land cost, the net tax will re­main 12% of the sell­ing price of a prop­erty.

Com­pleted prop­er­ties, which come un­der the im­mov­able prop­erty cat­e­gory, are out of the purview of the GST regime


An im­por­tant com­po­nent of the GST is the in­tro­duc­tion of in­put tax credit.

Un­der its pro­vi­sion, cred­its of in­put taxes paid at each stage of pro­duc­tion or ser­vice de­liv­ery can be availed in the suc­ceed­ing stages of value ad­di­tion.

“This makes GST, fun­da­men­tally, a tax only on value ad­di­tion at each stage. This means that the end con­sumer will thus bear the GST charged by the last dealer in the sup­ply chain, with set-off ben­e­fits at all ear­lier stages,” says Anuj Puri, chair­man, ANAROCK Prop­erty Con­sul­tants.

Builders are ex­pected to pass on the ben­e­fits of lower tax bur­den un­der the GST regime’s in­put tax credit to buyers of prop­erty by way of re­duced prices or in­stal­ments.

“Any vi­o­la­tion will be deemed to be prof­i­teer­ing un­der Sec­tion 171 of the GST law. The anti-prof­i­teer­ing author­ity (to be con­sti­tuted un­der the GST tax regime) in case of non­trans­fer­ence of the ben­e­fit by the builder has the power to re­duce prices. It can re­turn to the re­cip­i­ent, an amount equiv­a­lent to the amount not passed on by way of com­men­su­rate re­duc­tion in prices along with in­ter­est at the rate of 18% from the date of col­lec­tion of higher amount till the date of re­turn of such amount. The re­cov­ery of the amount, in­clud­ing in­ter­est not re­turned in case the el­i­gi­ble per­son does not claim re­turn of the amount or is not iden­ti­fi­able, and de­posit­ing the same in the fund re­ferred to in sec­tion 57; im­po­si­tion of penalty against the builder as pre­scribed un­der the Act; and can­cel­la­tion of reg­is­tra­tion un­der the Act ” says Ajay Jagga an ad­vo­cate based in Chandigarh.


“Builders ac­quire land on longterm lease for de­vel­op­ment and con­struc­tion of build­ing on that land and later of­fer to give the con­structed units on a longterm lease for a con­sid­er­a­tion which is a lump sum amount of the pre­mium.

How­ever, un­der the ex­emp­tion in GST, only pre­mium charged for any lease of 30 years or more to any in­dus­trial unit or plot is ex­empted. Na­tional Real Estate De­vel­op­ment Coun­cil (NAREDCO) has made a rec­om­men­da­tion that a sim­i­lar ex­emp­tion needs to be ex­tended in all cases (res­i­den­tial/hous­ing plots and oth­ers) for any pur­pose.

NAREDCO has de­manded clar­ity on tax­a­bil­ity of pref­er­en­tial lo­ca­tion cost (PLC) and park­ing charges,” says Parveen Jain, the pres­i­dent of NAREDCO


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