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Centre Trying To Bring Realty Under GST As States Tarry

Centre Trying To Bring Realty Under GST As States Tarry

Centre Trying To Bring Realty Under GST As States Tarry
(Shutterstock)

The sector was left feeling high and dry since the finance minister chose to mention the word real estate only once in his entire Budget Speech of 6,600 words on February 1. Except the announcement on rationalisation of circle rates,  Arun Jaitley decided to keep mum on all the demands the sector has been making in the run-up-to Budget 2018-19.

Among the many demands of the sector was to reduce the prevailing rates of the Goods and Services Tax (GST) on property transactions. Before the Budget was presented on February 1, the government had already decided to lower the applicable rates for home purchases under the Credit-Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY) to eight per cent. Otherwise, homebuyers have to pay 12 per cent GST on the purchase of under-construction projects, the rate fixed for work contracts. Developers were seeking rates for other segments should, too, come down, and expected that to happen in the Budget.

The combined effect of all the reformatory measures — the launch of the real estate Act, the Benami law and the GST, apart from the sudden note-ban blow —has severely impacted the heath and wealth of the sector.

A report released PropTiger DataLabs shows new launches in top nine cities of the country dropping 43 per cent in Calendar Year (CY) 2017 when compared to CY2016. With new launches taking a significant hit, sales numbers also went down 17 per cent during the same period. Offering relaxed GST rates to other buyer segments would have been a happy change and would have triggered demand. But, there was nothing to be heard at this point in Jaitley’s Budget Speech.

To put things in perspective, the FM is not really in a position to do so since that call could only be taken by the all-powerful GST Council.

On February 5, Jaitley, did hint that the effective levy on many transactions might out go down when revenues go up.

"The GST broadly has settled down. Almost in every meeting now, we are able to rationalise the tariffs, and this process will continue. It will continue with the structure tariffs being rationalised and the structure itself being rationalised as the collections go up," he said.

On his part, Jaitely has been nudging states to bring the sector directly under the ambit of the new tax regime.

"The one sector in India where the maximum amount of tax evasion and cash generation takes place is real estate and which is still outside the GST. Some of the states have been pressing for it. I personally believe that there is a strong case to bring real estate into the GST," Jaitley said in October last year. Bringing real estate under the ambit of the GST would result in consumers paying one final tax on the property, the FM said.

So far, GST is applicable only on the purchase of under-construction properties through works contracts. When the GST was rolled out on July 1, real estate, crude oil, jet fuel, natural gas, diesel and petrol were kept out of its purview. After the sector is brought under the cover of the new tax regime, other property-related transactions would also attract GST.

States, however, are so far not in the “mood” to allow that. Considering states earn a large part of their revenues by imposing taxes on purchase of these products, real estate included, the reluctance to hand them over to the Centre is only natural.

"So far, the mood of most of the states is not in favour of including it (in GST) at the moment. But I am sure as the GST experience moves on, I think, natural gas, real estate, these are areas which are to be brought in and then probably at some stage, we will keep trying for petrol, diesel and potable alcohol," Jaitley said.

With inputs from Housing News

Last Updated: Wed Feb 07 2018

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