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Tax burden on home buyers in under-construction projects is not expected to increase in Goods and Services Tax (GST) regime, an official from a property consulting firm said on Thursday. The general perception was that with the 12 per cent GST rate, the tax would go up from 5.5 per cent (service tax plus VAT).

We expect there will not be any upward impact of tax burden on buyers for under-construction projects after the roll-out of GST. Apparently, with the 12 per cent GST, there is a difference of 6.5 per cent on tax rates as compared to the pre-GST rate of 5.5 per cent. But lot of efficiencies have been brought in through GST, Knight Frank India’s Chief Economist and National Director (Research) Samantak Das said here.

Developers are working on how the input tax credit in the new indirect tax regime would be passed on, he said. We have talked to developers and they were trying their level best not to pass on any extra tax burden to home buyers. It is expected there will be no adverse impact on the buyers with the implementation of GST,” he said.

Das also said developers know passing of the extra tax burden to buyers could result in a further drop in sales. For new projects, it is expected that base prices would be revised so that post GST, price value of homes remains the same as in pre-GST era, Das said on the sidelines of the launch of new report India Real Estate – Residential and Office.

According to Knight Frank India, new launches crashed by 41 per cent, lowest in seven years, in the first six months of the current calendar year in top eight cities of Mumbai, Pune, Hyderabad, Chennai, Bangalore, Kolkata, Ahmedabad and Delhi – National Capital Region (NCR). The report said sales volume was also down by 11 per cent year-on-year in the first half of 2017.


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Arvind Parashar, an engineer with an IT firm, got a rude shock a few days back when he got an email from his real estate developer. The developer in the mail asked him to either pay the outstanding amount for his three-bedroom flat in Delhi NCR immediately or get ready to pay a higher amount post implementation of goods and services tax (GST) in July.
On calling the developer, he was told by the staff that to be fully compliant, the company would enhance its “demand-cum invoices” as per rules and regulations. “We therefore would like to inform you that if you have any previous outstanding payments with regard to your booked flat in our project, kindly clear the same before 1st July 2017 to save extra burden of tax differential amount,” the email stated.
With the implementation of the new tax regime just two weeks away, some real estate developers are asking for full payments for properties, even as the government has deemed any such move illegal. Caught in the middle are hapless flat owners, who do not know if post the implementation, they would have to pay more. “The whole week I have been trying to make sense of this. I am already paying Rs 48 lakh in total, going by what the developer said I would end up paying close to Rs 5 lakh more,” said Parashar.
Industry experts categorically said that property rates would not go up due to While the service tax charged would go up from 4.5 per cent to 12 per cent, it would be off-set by “Input Tax Credit” under the law, which would help keep the final selling price neutral.
The impact of on real estate would be primarily tax neutral; the Finance Ministry has made it very clear that there should be no additional tax burden on consumers. Developers who did not get the benefit of ITC (Input Tax Credit) in the pre-era will be able to avail the same post and the ITC that will be available to developers will be extremely tax efficient. As per GST, ITC has to be fully passed on to the consumers. With at 12 per cent and the ITC, the net impact should be a tax neutral environment for the consumers,” said Samantak Das, Chief Economist & National Director — Research, Knight Frank India.
He added that in the case of under-construction projects, developers will get ITC for the yet-to-be constructed portion. Hence, even if buyers have to pay 12 per cent GST, they are entitled to get the ITC (passed on to them by the developers). For new projects, it’s very straight-jacketed, will be applicable at 12 per cent and the ITC has to be passed on fully.
The Union finance ministry, state governments and the Central Board of Excise and Customs (CBEC) have received several complaints that people who have booked flats and made part payments are being asked to make the full payment before July 1 or face higher tax.
“This is against the law,” the government said. The construction of flats, complexes, and buildings will have a lower as compared with a plethora of central and state indirect taxes under the existing regime, it added.
Industry bodies, however, claim that the confusion over the issue has been caused due to ambiguities surrounding projects that are nearing completion. “There are projects that are almost 80 per cent complete, how will the developer get ITC there. There is confusion around it and we are seeking guidance on that. However, developers cannot force people to give the balance amount,” said Manoj Gaur, Vice-president, CREDAI National.

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KOLKATA: Real estate sectoral body CREDAI has urged the state governments to do away with the stamp duty on landed property to eliminate multi-point taxation after the introduction of GST.

CREDAI welcomes introduction of Goods and Services Tax (GST) as a major reform since it integrates all central and state taxes into one comprehensive tax regime for the entire country, the body said in a statement.

The trade and industry are major gainers of GST as it eliminates multiple taxation at the state and the Centre levels and the consequent cascading effects, it said.

However, where as for all other sectors GST is their total indirect tax liability, for real estate the GST rate is fixed at 12 per cent which was only a fraction of its tax burden, CREDAI said.

It said that the real estate sector is exceptional because GST regime does not eliminate multiple taxation. “Stamp duty levied by the states on all immovable property would continue to remain in force even after implementation of GST.

The additional burden on real estate on account of stamp duty averages between 5 per cent to 8 cent of the value of the immovable property.

Secondly, the duty is payable on every transaction and is levied by the state governments on circle rates or guideline values of property which are arbitrarily determined and far in excess of the value at which transactions takes place, it said.

Unless abatement for land is allowed, cost to the end consumer would go up.

CREDAI would, therefore, urge the government to minimize double taxation of real estate by treating land as zero rated under the GST regime. The positive multiplier effect of real estate on other industries would make up the revenue loss and the nation would be thankful for a tax regime consistent with the objective of Housing for All by 2022, said Mr Nandu Belani, President, CREDAI Bengal.

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With the announcement of the rates for taxation under the Goods and Services Tax (GST) for various goods, India is now one step closer to becoming a unified tax market. However, while the impact of GST on various sectors and goods is now known, industry experts are still divided over how GST will impact real estate going ahead as clarity on the tax slabs for services is still awaited.

According to industry experts, prima facie it looks like that there will be a neutral impact from cost perspective. Although the work contracts will attract around 12% and most of the construction material is under the 18% and 28% slab, the availability of input tax credit should neutralize the overall impact. A lot, therefore, will depend on the proper implementation and a proper system of claiming tax credits.

With the Real Estate Development and Regulation Act (RERA) also under implementation, developers may need to focus much more on streamlining their processes. We may expect initial teething issues, but implementation of GST should further enhance India’s attraction as an investment destination by encouraging greater transparency and ease of operation in all property deals, says Surabhi Arora, Senior Associate Director, Research, Colliers International India.

However, it is too early to say whether the implementation of GST will actually cool down the prices in the commercial and residential segments. “More clarity will come in the coming days as it is still not clear what would be the abatement available for land cost for calculating service tax on under-construction projects,” she says.

Anshuman Magazine, Chairman, India and South East Asia, CBRE, also says that several goods connected to the real estate industry are falling under the 18% and 28% slab. However, clarity on the tax slabs for services is still awaited. “In the long term, however, the successful implementation of GST in the country will be a game-changer for the market. The removal of various federal tax barriers and creation of a common market will improve supply chain efficiency and attract more FDI into the country,” he says.

Apart from attracting more FDI into the country, GST will also impart more transparency to the sector which currently faces a perception issue. “It will provide a thread for audit and checks for better control and monitoring of the sector. As a result, the home buyer will be empowered towards informed decision-making,” informs Amit Agarwal, co-founder, NoBroker.

GST will free end-consumers from the hassle of paying several state taxes at different levels, therefore removing the double taxation impact. Also, the implementation of GST will hugely benefit the NRI community towards investment in real estate through the formation of a seamless all-inclusive channel. The existing channels include issues of multiple taxation, amounting to indirect taxes and no uniformity.

In totality, “GST will add up as another factor among the government’s other schemes towards affordable housing, which is beneficial to the growth of the sector. Buying a home will now be easier as benefits will now be extended to both the developers and the end-consumers, says Agarwal.