New GST rates may raise property costs, say real estate developers

real estate

Real estate developers are concerned that the implementation of the goods and services tax (GST) may raise the overall cost of properties if the sector comes under the expected 18% tax slab and stamp duty is not subsumed in the new tax structure.

The GST Bill was cleared in Parliament’s budget session, paving the way for roll-out of the indirect tax regime on 1 July. According to the legislation, land leasing, renting of commercial properties and purchase of under-construction housing projects will attract GST.

The GST Council on 31 March approved nine sets of rules for implementation of the tax. It will hold its next meeting on 18-19 May to discuss the rates on individual items. Under the new indirect tax regime, there will be four tax slabs—5%, 12%, 18% and 28%.

It is speculated that for the real estate sector, the GST rate may be fixed at 18%. While VAT (value-added tax) and service tax that customers pay at the time of buying a property has been subsumed, stamp duty has been kept out of its purview—a move that most developers are worried may end up being a burden to the sector, which is already under pressure after three years of slow sales.

“As an industry norm, all taxes are subsumed under GST, but in the case of real estate, what they (government) are saying is stamp duty and other local body taxes will continue as it is. Taxation is going to be beyond reasonable,” said Niranjan Hiranandani, co-founder and managing director of Mumbai-based Hiranandani Group, who is also the president of real estate lobby group National Real Estate Development Council (Naredco).

Both Naredco and Confederation of Real Estate Developers’ Associations of India (Credai), another builders’ group, have recommended to the finance minister that the GST rate should not be kept higher than 12% for the real estate sector.

“The GST rate on the consideration excluding value of land should not be more than 12% covering both CGST (central GST) and SGST (state GST) after providing credit for all the inputs… Anything above this rate would only result in continued deceleration of this industry and also compromise GDP (gross domestic product) growth,” Credai said in a presentation to the government in February.

Prakash Challa, chairman (finance and taxation committee), Credai, said the group had sought an appointment with the finance minister to discuss the GST rate. According to him, the current net tax should be retained after the introduction of GST as well.

“There is a thought process right from the beginning that stamp duty should be subsumed along with GST and we have one common rate. End consumer is paying stamp duty, which is a state subject. So we are governed under the central tax and also under the state tax,” said Challa, who is also the managing director of Chennai-based real estate and infrastructure developer SSPDL Group.

Home buyers now pay a cumulative tax of around 11-12% including both service tax and VAT, depending on the rules in each state. Irfan Razack, chairman and managing director of Bengaluru-based Prestige Group, said that the stamp duty, which differs from state to state, should either be subsumed under GST or should be rationalized to about 2% from its current average rate of around 8%. He added that the new tax regime will benefit the sector in the long run and developers may be able to save as there will be no excise duty on various raw materials.

“If rate remains at 18%, it is high for an industry where the government is keen that investment should come in. I think it should be 12%, otherwise it will not bring down the prices, it may only go up,” said Nihal Kothari, executive director at law firm Khaitan and Co.

Source  : http://www.livemint.com/Companies/HBf284pa32Y0AOByNkow2O/New-GST-rates-may-raise-property-costs-say-real-estate-deve.html

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