NEW DELHI: The Goods and Services Tax (GST) could bring in transparency in the functioning of the real estate sector and even reduce the cost of ownership of homes for buyers, especially if the GST rate is lower than all the current rates put together, said builders and tax consultants.
These consultants, however, said there’s one problem in the Model GST Law for the sector that has been overlooked so far, and this issue could increase the total tax (including stamp duty) a homebuyer pays when buying a home to almost 20-22% of the property value as opposed to around 14% at present.
The Model GST Law says that input tax credit will not be available in cases where the end product made using the goods and/or services is an immovable property, other than plant and machinery.
“Input tax credit shall not be available in respect of goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery,” said the model bill. In the case of builders making homes, the end product is a building which is an immovable property.
“This would mean multiple taxation on homebuyers as the builder will pass on non-creditable tax to home buyers even as they pay GST on the consideration charged to them for the home and then stamp duty for registration,” said Abhishek Jain, tax partner at EY India.
According to back-of-the envelope calculations, homebuyers will end up paying around 20-22% in total tax compared to 14-16% if builder gets tax credit.
Prashanth Bhat, partner at BMR & Associates, however, said that under GST, credits will be denied to developers building commercial properties but it should not impact residential property developers. Builders ET spoke to were unclear about this aspect in the Model GST Law but said that it will be a negative if they were not allowed input tax credit.
Getamber Anand, national president of industry body CREDAI, said GST could reduce harassment that is there today due to multiple taxes. “It will create a level playing field for sure.” GST will replace the many different taxes that builders currently pay, many of them bordering on double taxation, with one single tax.
Anand, however, also said that if credit on input tax is not allowed to builders, it will get added to the price of the property and impact home buyers.
JC Sharma, managing director of Bengaluru-based Sobha Ltd, said if GST reduces the compliance cost for builders and also reduces the overall cost of inputs, it will be a positive for the industry.
Courtsey: Ravi Teja Sharma | ET Bureau | 05-Aug-2016