GST may reduce the cost of houses if it is at a rate below the current applicable taxes that are levied by the central and state governments
Ashwini Kumar Sharma | First Published: Mon, Apr 24 2017. 05 31 PM IST | LiveMint.com
The biggest reform in the indirect tax regime is set to get implemented very soon. Instead of different types of taxes—central, state, local and so on—soon there will be only one tax: the Goods and Services Tax (GST). Like any other sector, real estate will also come under the ambit of GST. However, as of now, there is lack of clarity on various aspects such as whether the rate of GST will remain at par with current applicable taxes and whether affordable or low-cost housing will remain out of the GST’s ambit. Read on to know what impact GST will have on the real estate sector in India.
When you buy an under-construction house, service tax is levied on a certain percentage of the total value of the property, which is considered the cost of construction. Cost of land is excluded from service tax. To do this, income tax provisions allow abatement to the tune of 75% on under-construction properties costing less than Rs1 crore; hence, service tax is calculated on 25% of the gross value. And, 70% abatement is allowed for properties costing more than Rs1 crore: service tax is levied on 30% of the value.
Given that service tax of 15% is charged only on the construction cost, the effective rate on the entire value of a property costing below Rs1 crore is 3.75% (i.e., 15% * 25% of the property value), and for a property above Rs1 crore, the effective rate is 4.5% (15% * 30% of the property value). Thus, if you buy a property at Rs80 lakh, you will have to pay Rs3 lakh (3.75% of Rs80 lakh) as service tax. And, if the property was Rs1.6 crore, service tax would be Rs7.2 lakh (4.5% of Rs1.6 crore). Once GST gets implemented, “Payment of service tax on the properties under construction does not arise. It will be replaced with GST,” said Kunal Wadhwa, partner-indirect taxes, PwC. Besides that, “Existing abatements under the service tax laws are also to be done away with post implementation of GST,” added Wadhwa. So, it is likely that tax will be charged on the actual construction value.
However, the concern is whether the GST rate would be higher than the prevailing service tax rate or lower. “It is expected to remain around 12% or lower than 15% (the current applicable service tax rate). It will not be on the higher side at around 18%,” said Abhishek Rastogi, partner, Khaitan & Co. If the GST rate remains on the lower side, it will bring down the overall cost of houses.
Value added Tax
Some states like Haryana and Delhi also charge value added tax (VAT) on under-construction properties, which is again borne by a homebuyer. However, once GST gets implemented “the current composition schemes for developers under VAT laws of respective states would come to an end,” said Naveen Wadhwa, deputy general manager, Taxmann.com. VAT is a state subject and varies between 1% and 5% of the property value. However, “There is a lot of litigation going forward on this account,” said Nangia. There are many contentious issues for both developers and homebuyers regarding VAT. Some cases have also reached the apex court. Once GST gets implemented “it will simplify tax structure and reduce the scope for litigation, however this may increase the cost of real estate in states that never had VAT,” said Nangia.
A homebuyer has to pay stamp duty to get the property registered. Even after GST, “Stamp duty will continue, as GST will not subsume stamp duty levied by government,” said Wadhwa.
Stamp duty is calculated as a percentage of the agreed value of the property, or the circle rate (the minimum price on which a property can be transacted, which is decided by the government), whichever is greater. In addition to stamp duty, typically 1% of the value of a property is charged as registration fee for registration of property documents (sale deed). In some states, if a property is bought in the name of a woman, the stamp duty levied is lower. For instance, in Delhi, properties registered in the name of women attract 4% stamp duty, compared to 6% otherwise. However, in case of joint ownership, where the property is bought jointly in the name of a man and a woman, buyers have to pay stamp duty of 5%, in case of Delhi.
In some states, stamp duty also depends on the region in which a sale deed is executed. For instance, in Haryana a man is required to pay 8% stamp duty in urban areas and 6% in rural areas, while women have to pay 6% in urban areas and 4% in rural areas.
“The Task Force on Goods and Services Tax recommended in the Thirteenth Finance Commission that real estate sector should be integrated into the GST framework by subsuming the stamp duty on immovable properties levied by the states, to facilitate input credit and eliminate the cascading effect,” said Nangia.
But “due to political and economic considerations, stamp duty—which is a good contributor of revenue to state government—is not subsumed in the GST framework for the time being,” added Nangia.
As of now, taxes and duties can increase the cost of property by 15-18% for homebuyers. After GST gets implemented, whether the cost of houses will come down or increase, will depend on the rate at which GST is charged and whether there will be any abatement or not.
GST, which the government intends to roll out from July 1, 2017, will subsume central excise, service tax and state VAT among other indirect levies on manufactured goods and services
PTI | Updated: March 28, 2017, 18:29 IST | ET Realty
Home loan EMIs of under-construction houses, renting & land leasing to attract GST from July 1. Come July 1 and leasing of land, renting of buildings as well as EMIs paid for purchase of under-construction houses will start attracting the Goods and Services Tax.
Sale of land and buildings will be however out of the purview of GST, the new indirect tax regime. Such transactions will continue to attract the stamp duty, according to the legislations Finance Minister Arun Jaitley introduced in the Lok Sabha yesterday for approval.
Electricity has also been kept out of the GST ambit.
GST, which the government intends to roll out from July 1, 2017, will subsume central excise, service tax and state VAT among other indirect levies on manufactured goods and services.
The Central GST (CGST) bill — one of the four legislations introduced, states that any lease, tenancy, easement, licence to occupy land will be considered as supply of service.
Also, any lease or letting out of the building, including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services as per the CGST bill.
The GST bills provide that sale of land and, sale of building except the sale of under construction building will nether be treated as a supply of goods not a supply of services. Thus GST can’t be levied in those supplies.
‘Goods’ in earlier drafts of the bills were defined as every kind of movable property other than money and securities but includes actionable claim. ‘Services’ were defined as anything other than goods. It was thought that GST may be levied on supply of immovable property such as Land or building apart from levy of stamp duty.
But the bills presented in Parliament have now clarified this position.
Tax experts said that currently service tax is levied on rents paid for commercial and industrial units, although it is exempt for residential units.
Deloitte Haskins Sells LLP Senior Director M S Mani said: “While service tax is applicable at present on sale of under construction apartments, it is levied on a lower value as abatement allowed. The abatement is ostensibly to take care of the value of the land involved in the construction of apartments”.
He said the GST Rules, which will come up for discussion in the Council meeting on March 31, would help ascertain whether a lower rate of GST is proposed for such transactions or whether a similar abatement procedure would be prescribed.
“This would also be dependent on the rate fixation committee which is expected to finalise its recommendations in April,” Mani said.
Experts said service tax is currently levied on payments made for under-construction residential houses after providing abatement, which brings down the effective rate from 18 per cent to around 6 per cent.
“The government is trying its best to make GST litigation free. The bills very clearly specify that GST would be charged on any lease of land or letting out of the building or construction of a complex, building, civil structure or a part thereof, where whole or any part of consideration has been received before issuance of completion certificate or its first occupation,” Nangia & Co Director Rajat Mohan said.
Experts said the GST subsumes central levies like excise and service tax and local levies like VAT, entertainment tax, luxury tax. However, it does not subsume Electricity Duty.
Since the GST Constitution Amendment Act does not provide for subsuming ‘electricity duty’ under GST, it will continue to be levied by the respective state governments.
Certain states like Delhi exempt residential properties from electricity duty but levy it on commercial and industrial units.
Source : https://goo.gl/0mRlKH
NDTV Profit Team | Last Updated: February 08, 2016 11:45 (IST)
It is that time of the year, when the salaried class starts praying for incremental tax concessions in the annual budget. Analysts, however, say that the government should focus on increasing the tax net instead of announcing new income tax concessions.
That’s because only 3 per cent of over 1 billion people in the country are estimated to pay income tax. Those who earn Rs. 21,000 and more (per month) have to pay taxes, but many small businesses, professionals (such as doctors and lawyers) and rich farmers do not pay taxes.
Tax evasion is not limited to smaller tax payers, analysts say. The number of people who declare annual income of over Rs. 1 crore is abysmally low at just around 50,000 in the country, they added.
“The number of income tax payers in India is woefully small, and the prosperity the country has achieved post reforms, do not reflect in number of taxpayers… We have to devise systems so that we can be able to bring tax avoiding population within the tax net,” said Yashwant Sinha, former finance minister.
According to Mr Sinha, the government has taken “baby steps” by announcing several measures on cash transactions, which could add 30-40 lakhs more tax payers per year.
The Goods and Services Tax (GST), however, could be a big step in bringing more people in the tax net, he added.
“If you had GST for instance, that will help… You will not have a separate sales tax, separate services tax, and a separate excise duty, etc. and you will have income tax. So, people in this country will be paying only two kinds of taxes… If a person is paying a certain amount of excise or service tax and he is not paying income tax, we can easily net him in income tax by finding this out,” Mr Sinha said.
Source : http://goo.gl/eS9Ay9
Rajesh Ahuja | New Delhi | October 21, 2014 | Hindustan Times
Besides rolling out the DTC and GST as part of simplifying tax regime in country to push Prime Minister Narendra Modi’s ‘Make in India’ initiative, the government has drawn an ambitious action plan to improve India’s ranking in ‘Doing Business Report’ of the World Bank and it includes measures like providing electricity connections within two weeks of applying.
The department of industrial policy and promotion (DIPP) on Tuesday held an interactive session with babus of the all stakeholder ministries to have a better understanding of the issues involved.
In its ‘Doing Business in India’ report of 2014, the World Bank has ranked India at 134th place. At the inauguration of Make in India’ campaign, Prime Minister Narendra Modi called for substantially improving India’s rank. At the moment India lags behind China (96), Nepal (105), Pakistan (110) and Bangladesh (130) in the ranking. PM Modi wants to bring the country in top 50 rankings.
The DIPP after a detailed exercise identified the sectors, specific activities and ministry of department where reforms are required.
The DIPP in its action plan has flagged issues like reduction of number of taxes, online payment of taxes to expedite implementation of direct tax code and goods and services tax for the finance ministry. The plan has set a deadline of six months for rolling the DTC and GST regime.
According to the DIPP, at the moment, firms make 33 tax payments in a year and spend 243 hours a year filing preparing and paying taxes.
The government also wants to introduce payment of VAT refund directly in the account of firm and in a time-bound manner.
For the ministry of power, the agenda is simplification of process of electricity connection. At the moment it requires seven procedures and takes 67 days. The government wants to bring it down to two weeks. Besides it also wants to remove the requirement of pollution control certificate for providing the electricity connection.
According to the action plan, the ministry of corporate affairs is expected to bring down the time taken in registration of business in India from existing 27 days to one day. Besides, doing away from the requirement of company seal to minimum paid up capital for starting a business are also part of the measures that the corporate affairs ministry is to take within three months to 30 days.
Source : http://goo.gl/kHBXHv