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Home Buyers, Tenants Await Clarity On Rates As Govt Inches Closer To GST Rollout

Home Buyers, Tenants Await Clarity On Rates As Govt Inches Closer To GST Rollout

Home Buyers, Tenants Await Clarity On Rates As Govt Inches Closer To GST Rollout
As the Central GST Bill defines it, tenancy, lease, license to occupy land or easement will be considered as supply of service under the new tax regime. (Wikipedia)

The stage is set — well, almost — for the July 1 rollout of India's new indirect tax regime, the Goods and Services Tax (GST). On March 29, the Lower House of Parliament cleared four Bills — the Integrated GST, the Central GST, the Union territory GST and the Compensation Bill. Two days later, the GST Council cleared rules on five of the nine aspects and approved four sets of norms, tentatively. In its next meeting on May 18-19 in Srinagar, the Council will gather to accomplish the gigantic task of fitting individual items into a four-tier tax structure –  5, 12, 18 and 28 per cent.

As the Central GST Bill defines it, tenancy, lease, license to occupy land or easement will be considered as supply of service under the new tax regime. Similarly, leasing or letting out of a residential, industrial and commercial building for commercial purposes will also constitute a supply of services. Further, the sale of under-construction properties will start attracting GST. However, the sale of land and buildings will be out of the purview of GST and such transactions will continue to attract stamp duty. Earlier, participating in a seven-hour-long debate in Parliament, Finance Minister Arun Jaitley said that the GST Council had agreed to take a decision on bringing real estate within the ambit of the new tax regime within a year of its rollout.

Though the finance minister claimed that the GST, touted as the biggest tax reform in the Indian history, will stop the "harassment of businesses by different authorities” and will make commodities “slightly cheaper", so far ambiguity prevails. Businesses can only conjecture so far as they will get only six weeks to prepare themselves to settle in with the new tax regime. Real estate is no different. In an atmosphere of utter chaos, sector experts are hoping the tax slab remains lower and the abatement scheme continues.

Developers hope the government keeps under-construction property transactions under 12 per cent tax slabs. This will be in line with the government's affordable housing push. However, if rates are kept at 18 per cent, prices of under-construction properties will shoot up. Investing in under-construction property will shoot further if government does not implement the existing abatement scheme. Under the service tax regime, if your house is less than 2,000 square foot in size and cost you less than Rs 1 crore, an abatement of 75 per cent is allowed. This means home buyers and developers have to pay only 3.75 per cent as service tax. In case the two conditions are not met, one still enjoys benefits on buying an under-construction property and has to pay only 4.5 per cent in taxes. If the government decides not to extend the abatement scheme under the new regime, under-construction properties will be in a great danger of turning unaffordable.

However, starting July, renting and leasing are, of course, going to get costlier because the landlord will pass on the increased costs to tenants. So far, landlords had to pay service tax only for commercial and industrial leasing. Under the GST regime, residential leasing will also be rendered taxable.

It is worth mentioning here that service tax is a Central levy ― the GST will be subsuming this and many other Central and state taxes ― and a standard rate of 15 per cent is applicable across the country on the purchase of services. On purchase of properties, home buyers also pay value-added tax, a state levy.

Last Updated: Mon Jun 19 2017

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