If Real Estate Brought Under GST, Buyers Will Pay Negligible Tax: Jaitley
When the Goods and Services Tax (GST) Council holds its next meeting in Guwahati on November 9, it would take up for discussion a matter quite crucial for India's real estate sector in general and homebuyers in particular. While talking about India's tax reforms at the Harvard University recently, Finance Minister Arun Jaitley told his audience the government was considering bringing the real estate sector under the ambit of the new tax regime — a move which would result in consumers paying one "final tax" on the whole product.
“The one sector in India where maximum amount of tax evasion and cash generation takes place and which is still outside the GST is real estate. 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,” the finance minister said.
The finance minister also said that India had historically been one of the least efficient tax systems in the world, with an extremely small tax base.
Under the existing structure, a 12 per cent GST is levied on the construction of complexes, buildings, civil structures intended for sale while land and other immovable assets remain outside of the purview of the tax regime, touted to be the biggest tax reform in Independent India's history.
“In the next meeting itself, we are addressing one of the problem areas or at least (having) discussion (on) it. Some states want, some do not. There are two views. Therefore, by discussion, we would try to reach one view,” he said.
Jaitley added that in case states agree to bring the sector under the ambit of the GST, "the final tax paid on the whole product in the GST would almost be negligible."
It is worth mentioning here that the government has been urging developers to pass on any benefits that they may avail of under the new tax regime to the homebuyers.
"The builders are expected to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/installments ... It is advised to all builders/construction companies that in the flats under construction, they should not ask customers to pay a higher tax rate on installments to be received after imposition of GST,” a government statement said after the tax system came into effect in July.
The government has also been urging states to rationalise stamp duty charges to make property purchases more affordable. Announcing its fourth monetary policy review on October 4, the Reserve Bank of India also asked states to bring down the "excessively high stamp duties" to further bring down the total cost of real estate transactions.
While emphasising the move would prove to be an incentive for consumers to enter the tax net, Jaitley said that was also likely to help reduce the size of “shadow economy”.