The first Look….
July 1 dawned to the application of what is clearly seen as the biggest Tax reform in India. The wave that it stirred up, the impact of the regulations and the expected results in the context of the Indian Economy have all made this one of the hottest topics of debate in the past few months.
Clearly, the Indian government has established the single tax system with the aim of eradicating corruption and ensuring fair play. This initiative is laying down a path for a common national market.
Amidst the confusion about the definitions and restrictions/policies that will sweep over the economy, here’s our attempt to clear off some cobwebs and make the term simpler for you.
The Goods and Services Tax defined-
- Goods and Services Tax (GST) is a single indirect tax implemented to help in eliminating “tax on tax.”
- It is a general service taxation system imposed throughout India to replace all the central and state taxes.
- It is stipulated to be one tax on supply of goods and services that will be paid only on value addition at each stage, right from the manufacturer to the end consumer.
- With the benefit of setting off tax at the previous stages of the chain, the end user will only bear the amount charged by the last supplier in the supply chain.
- The GST rates on goods and services are – 0%, 5%, 12%, 18%, 28%
- 5% will be levied on common, daily used items,
- 12% and 18% on fast moving consumer goods, services (except some services such as train tickets will fall under low slab of tax),
- 28% on luxury items and
- For ultra luxury items, it will be 28% + cess
- The various taxes, levied by the Central and State Government that will be included in the GST are as follows
- Central Excise Duty
- Additional Excise Duty
- Countervailing Duty (i.e. additional customs duty)
- Taxes on lottery, gambling, and betting
- Special Additional Duty of Customs
- Taxes – Entertainment, Sales or VAT, Central Sales, Purchase, Luxury, Service, and Octroi and Entry
Expected Benefits of the GST
It is not only hoped but also expected that everyone will profit from the implementation of the GST scheme, whether it is the state and central government, business and industry or final consumer. The various advantages of the system are as follows:
- Various taxpayer services such as returns, payments, registrations, etc. will be available online, making the IT system transparent and easy to comply with. With the help of dynamic IT system, it will be easy to administer the GST as compared to the various taxes levied by the Central and State Governments.
- Because of the uniformity in tax throughout the country, the ease of running a business in different locations has increased. This will also help in enhancing the competitiveness of Indian goods and services in the International market which is expected to boost the country’s export industry.
- With the implementation of a single taxation system under GST, there will be no hidden taxes and the final user will be able to enjoy the benefits of the transparent system. It will also reduce the overall tax burden on goods as well as on the final consumers.
- Goods and Services Tax will help in decreasing the hidden expenses of the business.
- It is anticipated that with the execution of GST, the cost incurred in the collection of tax revenues will reduce, thereby increasing the efficiency and amounts of revenue.
The debates will go on, definitions will be challenged and discussed, regulations will be questioned from time to time – In all this, keep watching this space for more on this topic for detailed analysis and clarifications.
GST as we understand now
The much awaited ‘General’ term that promises to bring about structural changes
Goods & Services Tax is an indirect tax levied by the government to replace all other indirect taxes of the entire country with an objective to make India one unified common market to strengthen the economy.
- India is shifting to this new taxation system from 1st July.
- The new structure will include fewer central and state taxes, including service tax, excise duty, and VAT in the categories of CGST and SGST.
- The new tax regime has also included an anti-profiteering clause in the law to ensure profit by the developers to the buyers.
- Besides agriculture, it is the property sector which is the most important sector of the Indian economy.
- Whether it is employment generation or the GDP, the contribution of Real estate industry can be estimated with its average 5-6% GDP contribution to the economy and the inciting demand for more than 250 ancillary enterprises.
The Impact of GST on the Real Estate Sector
It is expected to play a threefold role-
- ensure transparency
- minimize illegal transactions
- help in growing buyer confidence.
It may be noted that:
The sale of land and buildings are at present out of the purview of Goods & Services Tax. However, it is believed that they will be brought under the purview of GST within one year. The construction of buildings and land is going to benefit from the rates declared for iron, bricks, and cement under Goods and Service Tax. Logistics cost of transport of iron, bricks, and cement will reduce because of the subsuming and integration of many taxes in our country.
- The current channels of taxation include multiple taxations, amounting to indirect taxes and no uniformity.
- Therefore, the new taxation system along with RERA that came on May 1, 2017, would bring efficiency and improve performance.
- It is expected to relieve homebuyers and investors from the trouble of paying several state taxes at various levels, therefore removing the impact of double taxation.
- It is hoped that it would be beneficial in carrying forward the benefits which the sector derives from SEZ.
- It could fill the gaps that exist in the supply chain management process.
What can the GST achieve?
From an overall perspective, the impact of GST could be imperative transparency and accountability. Developers /Contractors, consumers, investors all would reap the benefit of many taxes which will be subsumed by GST. Even in the middle of scepticism that the announced rate is higher than the present one, the sector should be pleased with the totality of benefits expected.
- There is an enormous percentage of expenses on projects that go unrecorded on the books currently.
- It can cut down this rate through cloud storing of invoicing.
- The new law will lead to multiple benefits to all ancillary industries because of the positive effect on real estate sector.
- It is likely that it brings about an increase foreign investment in the domestic market.
- The NRI community could gain in terms of investment because of the availability now of a smooth all-inclusive tax regime.
- This simplification of taxation has been the most positive aspect of it, and it might promise well for foreign investments especially as far as raising the confidence of the NRI market to invest in Indian real estate market is concerned.
- From the consumer’s point of view, the major advantage of this change would be the expected fall in the entire tax burden on goods which at present estimates about 25%-30%.
- This tax could lead to better transport of merchandise free of cost across state borders. Transportation without being stopped for long for payments of state or entry tax from one state to another further reduces the paperwork to a great extent.