GST to present realty with Reality!

The Indian real estate sector is expected to grow and touch $200
billion by 2020. For over last one decade, housing sector itself has
had a 5-6 % consistent contribution towards Indian GDP along
with being one of the primary contributors towards employment
generation. This sector can be broadly classified into four subsectors; housing, commercial, hospitality and retail. As the country
moves towards urbanisation, this sectors growth will be well
complemented and the demand for housing and commercial
divisions is bound to move north.
The much awaited Goods and Service Tax (GST) is to be tabled in
the upcoming winter session of the parliament commencing from
26th November, 2015 and ending on 23rd December, 2015; and if
implemented it can prove to be a real game changer if formed and executed in a planned manner.
Apart from GST, Land acquisition bill and real estate bill will be two key bills to look out for.
Looking at how much growth it can bring towards the realty sector of our country, Deepak
Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz avers Implementation of
GST will basically work on three major elements for this sector; simplification of tax structure,
reduction in construction costs and better transparency. Speaking about its contribution post
acceptance, we are predicting a nationwide realty sector growth by almost 15-20 percent than
projected in the course of next 5-7 years. There will be a quick reaction towards the sector by its
customers as demand is bound to increase due to reducing costs and improving transparency in
the sector that has been the hurdle making this sector suffer for long now.
Simplification of Tax Structure
One of the major issues that GST can address is to present this sector with uniformity of tax
practices. There have been countless instances where duplication and multiplication of taxes has
somewhere dented the credibility of this sector. Presently, the realty sector has two key levies in
the form of VAT and service tax, with overlay of tax base and continuous disagreements for the
rate of tax, given the several options available for discharge of taxes across states.
All these reasons have resulted in varied practices being followed by developers across different
regions and within states. With the dawn of concepts like hustling in service tax coupled with
reductions and various mandatory charges collected by developers these days, highlights the
importance of having a same tax base which can be only answered by GST. A single tax rate
across the country will promote fair practices which will further encourage transparency and less
evasion in the sector that supports in future growth of demand for real estate states Ashok
Gupta, CMD, Ajnara India Ltd.

Adding to the view, Kushagr Ansal, Director, Ansal Housing says these days, there are
developers and builders who are constructing projects in different states and thus have to abide
by the state specific VAT laws, service tax and corresponding compliances. The presence of
several indirect tax components faced by the developers at present are a major cause that bring
tax inefficiency in this sector. Thus, the acceptance of GST will finally help in restricting these
problems and create a simplified tax structure which can be followed by developers not worrying
about which region or state they plan to construct and deliver at.
Reducing the cost burden
Currently, the homebuyers of this sector are under the pressure of two forms of taxes; service tax
and VAT on the purchase of residential units when booked prior to its completion. There are
numerous components of non-creditable tax costs such as CST, entry tax, customs duty, excise
duty, etc. which is duly paid by the developer on its procurement side which are basically
ingredients for the cost pricing of the units. All the non-creditable tax costs borne by the
developer add upto almost 25 percent of the price of units. The proposed GST plan should
replace these multiple taxes stinging the buyers through high cost price of units by a single tax
thereby also ensuring smooth flow of funds through the chain, elucidates Ankit Aggarwal,
CMD, Devika Group.
What future it holds?
The first and foremost decision has to be on a single GST structure as the situation may get
further complex with states having power to notify differential SGST rate, as the present model
indicates a separate tax rate schedule for both, centre and state levels, that is CGST and SGST
respectively. In such cases, local developers will have a tough time in the middle and isolation is
bound to happen for states opting higher tax bracket. Thus, realty markets for such regions will
fumble if single GST structure is not made applicable, illuminates Rupesh Gupta, Director, JM
Housing.
It has been correctly pointed out that a single GST will be the real need of hour in order to create
smooth functioning of this sector. A well-defined GST implemented for the country will bring
about a relief for this sector and its customers. Commercial realty players will be hugely
benefitted as all the lost Cenvat credit, which is in current regime a cost to commercial developer
can be availed if GST is applied in a free flow manner that will also help in reducing costs.
With increased limpidity and streamlined tax procedures, most small and mid-scale developers
will also come into picture, as in order to control corruption; filtration process will make many
developers visible.
In a nutshell, GST seems to be a benefactor for the realty sector, provided a single tax rate gets
followed and increase in the margins moves into the hands of the developers. Now whether this
benefit will be rightfully passed on to the customers will be a question remaining to be answered,
as this sector is driven more by market dynamics than costing principles.
Source: CommonFloor.com
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