GST and the Real Estate

GSA and the Real Estate India

With the implementation of GST from July 2017, people wanting to invest in the real estate sector as well as dispose of their existing one are curious to understand how GST will impact them.

We have received numerous queries after this move by the government. While it may not be possible to address all individual queries in one go, a few of them are mentioned below:

Have the property prices raised post the GST roll-out?

Overall prices in the real estate sector have increased slightly post the implementation of GST.

As per the government, the properties which are under construction will be charged 18% tax which includes 9% CGST and 9% SGST. The government has permitted the subtraction of land value equal to one-third of the total amount asked by the builder. This is thus, reducing the effective tax rate to 12%.

What will be the impact on the ready-to-move-in properties?

The price of the assets is expected to go high because GST is not applicable on ready-to-move-in properties. The pressure of the tax is to the developers because of which they may charge extra to bear the add-on expenses.

How will the resale of the properties be affected by the GST?

The immovable properties are out of the scope of the existing provisions of GST, and therefore, the seller will not be liable to pay the tax on selling the property.

How will the GST affect various charges such as registration charges, stamp duty, etc.?

As far as stamp duty and registration charges are concerned, they do not come under the scope of GST system. However, it can be expected that the government will include these fees under GST in the coming years.

What will be the effect of GST on EMIs on home loans?

GST is applicable at the rate of 18% on the financial services. This indicates that there are chances that home loan processing charges will increase.

The overall impact of GST will be apparent with time until then the speculations will continue to come up and disappear as well. As of now what we can say is that the GST roll-out is beneficial for both the builders and the customers.

What is so good about the Goods and Services Tax (GST)?

Benefits of the GST

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:

  • GST BenefitsVarious 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 and its impact in the Real Estate Sector

GSA and Real Estate

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

Impact of GST on Real Estate India

It is expected to play a threefold role-

  1. ensure transparency
  2. minimize illegal transactions
  3. 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.

Goods and Services Tax and its Impact

GST- Goods and services tax

The Indirect Tax system of India is incredibly complex because of the numerous types of taxes levied by the Governments both center and state on Goods and Services. For example Entertainment Tax for watching a film, Value Added Tax (VAT) for purchasing goods & services by the consumer. Taxes such as excise and import Duties, Luxury, Central Sales, Service and Entry Tax are few other taxes in the list.The Goods and Services Tax is a massive reform in indirect tax structure in Indian taxation system.

Many experts have therefore proposed that to resolve the problems of increased taxes it is required to streamline all indirect taxes and implement a “single taxation” system. This system is entitled to Goods and Services Tax or GST. This GST will be tolled both on Goods and Services.

In simple terms, GST is a tax that people need to pay while supplying or providing of goods & services.

The suggested GST model:

A twin GST system is cataloged to be implemented in India as proposed by the Empowered Committee under which the GST is divided into two parts:

  • Central Goods and Services Tax (CGST)
  • State Goods and Services Tax (SGST)

The benefits of the bill:

  • The tax structure will become lean and straightforward.
  • The whole Indian market will be an incorporated market which may transform into lower business costs. It can simplify the seamless movement of goods across states and reduce the transaction costs of activities.
  • It is profitable for export companies as it will not be levied on goods/services transported abroad.
  • Its implementation will yield long-term benefits. The flatter tax burden could translate into lower prices on goods for customers.
  • The Suppliers, manufacturers, wholesalers and retailers can recover GST suffered on input costs as tax credits. This may decrease the cost of doing business, thus enabling reasonable prices for customers.
  • It can bring more transparency and better compliance.
  • GST implementation can control corruption. The fraction of departments (tax departments) will decrease which in turn may lead to less corruption and scams.
  • More business persons will come under this banner of tax system thus widening the tax base. This may result in larger and increased tax revenue collections.
  • Companies which are under disorganized sector will also appear under the tax scanner.
  • The method of GST registration would also be made accessible, thereby improving the ease of starting a business in India.
  • GST is assumed to have a positive impact on the Central and the State level.As per the latest reports, the introduction of GST would help India to gain $15 billion every year. Let us see how:
  • Improved exports,
  • More opportunities for employment,
  • Enhanced economic growth, and
  • Reduced burden on central and state government.

To conclude, GST is a single taxation system that will diminish the number of indirect taxes. The GST will replace maximum other indirect taxes and synchronize the differential tax rates on mass-produced goods and services.

The government of India maintains that GST will improve Indian GDP by 2%. With the implementation of GST, consumers will have funds to pay because of the lower tax rates. It can be stated that it will completely change the indirect tax system in India.

BUDGET 2017 – What NRIs expect and hope for!

Budget 2017_NRIs

The waves that the demonetisation policies created across the NRI community across the globe in November, 2016 have laid grounds for anxiety over the next major step that the Indian government will present – the Budget, 2017. Given that the budget is to be presented in just a few days there is a lot of speculation about what the NRI community will face in terms of the rules on taxation and other aspects.

On the whole, it is generally perceive that the ongoing approach of policies like the demonetisation, the GST and other major steps in the past one year or so, could help create higher tax compliance and hopefully, a wider tax base too. One of the major expectations of people from this year’s budget is lower tax rates.

People expect that the Income Declaration Scheme of the Modi government, announced in 2016, will add to the revenue collection of the government. If one were to assume that there is close to Rs 75,000 crores declared as black money that means at tax rates of about 45%, almost Rs 35000 would get collected as taxes! The government also hopes to gain significant amounts from the Pradhan mantra Garib Kalyan Yojana 2016 (PMGKY).

Overseas citizens perhaps wait with a tentative wish-list in mind. Amongst the major steps that the NRIs expect to be taken in the current budget, the following stand out prominently.

  • A Rational Tax Refund procedure:
    • Tax filing has been electronic for some time now.
    • However it is not so easy to get the refunds tracked or even get these done easily.
    • If anybody were to be in a position to have a refund of more than Rs 50,000 he would have to collect it in paper format, meaning that somebody has to collect these cheques on his behalf and also get them credited within the designated time.
    • Sometimes, NRIs might not have accounts in India and in such cases it would be very tough for them to get access to the money.
    • It is impossible to get a direct remittance done to foreign bank accounts of NRIs.
    • It is important to address the above complication. There should be ease of transfer of the money through wire transfer or other electronic method.
  • TRC or Tax Residency Certificate –
    • This is a major complexity created in the system.
    • TRC is a certificate required from the Tax Authorities of the country where the NRI resides so that he can qualify for the benefits under the ambit of the country’s tax treaties with India.
    • To add to the complications, Indian Tax authorities usually demand the TRC while acting on the tax relief.
    • If NRIs could be given relief on this front and have the concession of only producing the passports or the resident country’s tax return to claim their tax relief.
  • Taxation at par –
    • NRIs fairly expect to be treated at the same level with residents.
    • While resident Indians pay the TDS (tax deducted at source) only on incomes earned beyond a certain level, this is not so with Non-Residents.
    • Overseas citizens have been hoping that the system is modified to impose same rates for all, irrespective of their status in terms of residency.
    • In addition, NRIs hope that the rules for them to pay taxes on Capital gains are also revised and modified to suit their comfort levels.
  • Property Tax Laws –
    • Tax laws are not clear regarding the sale of property in India.
    • Any payment that an NRI receives from any buyer gets scrutinised for TDS rates that could be as high as 20-31%.
    • Further, there are some aspects that NRIs would do well to remember while buying Property in India-
      • If a person owns more than one property in India, as per Indian laws, only one property can be considered self-occupied for the purpose of taxation
      • All other property will be considered to be on rent and an NRI will be liable to pay tax on such properties
      • The same rule applies for inherited property too.

While NRIs are waiting and hoping for major considerations in the forthcoming budget, it remains to be seen how much is actually implemented.