By Dr. Niranjan Hiranandani, President, NAREDCO
MUMBAI: The Goods and Services Tax (GST) has undisputedly, been the biggest reform for the Indian economy since 1947, as also a paradigm changing event for the real estate industry.
On completion of the first year under the GST regime, Dr. Niranjan Hiranandani, President, National Real Estate Development Council (NAREDCO) said that while implementation of GST has resulted in implementing ‘one nation, one market, one tax’ as also doing away with multiple state and local body level taxes in addition to central levies, there are pending positives that were to accrue from implementation of GST – which are still awaited.
Describing GST a ‘game-changer for the Indian economy, including real estate’, he pointed out that as GST has brought more than 16 major taxes and levies into a single consolidated tax, in the avatar of a unified tax regime. This has effectively stopped the unwanted practice of double taxation, which was earlier adversely affecting real estate and other sectors, given the cascading effect which inflated prices for end users.
On completion of one year, real estate, while having gained from positive aspects, has some other aspects, be they about the manner in which implementation of the GST regime has taken place, or with regards some unresolved issues that have arisen as a result. The housing sector is still awaiting the attention of policymakers, with the hope that these will be sorted out.
When GST rates were first announced, the initial rates announced for real estate were 12 per cent and 18 per cent. These have since been revised to 8 per cent for Affordable Housing and 12 per cent for other segments of the housing. This has created something which is not a level playing field, and it is in the interests of home buyers as also the real estate industry, if there could be a common rate of 6 per cent applicable to all categories of housing.
The GST applicable on ready possession, Occupation Certificate (OC) received homes is zero, while on an under construction home, it is levied at 12 per cent. In effect, it creates a situation where a home seeker feels it is advantageous to wait for the project receiving the O.C. before making the purchase, as there is a saving of the 12 per cent GST. The impact is being acutely felt on under construction stage sales, in fact, it has become a new trend – home buyers are opting for such homes where they can save the 12 per cent GST. This has created a scenario in real estate where home seekers are giving up the advantage of arbitrage while buying under construction homes. For another segment of home buyers, booking a home at the start of the project offered time options in which to spread the payment instalments, a present scenario they have to put up the entire amount at one go. Given these issues, it would be ideal if the aspect of levying GST at 12 per cent on under construction homes is re-visited. Development Rights is another aspect where the impact of GST needs a second look.
Given the impact of GST on real estate, especially the manner in which it has been implemented, from an industry perspective, it is strongly recommends that the aspects of stamp duty and registration as also any other additional levies over and above GST, should be subsumed into GST. This will ensure that the total amount payable by the home buyer will come down, with a positive impact. At the same time, there should be no further hike in the GST rate, as the effect will be dampening for the sector, which is a major GDP growth contributor of the rapidly developing economy and attracts domestic as well global investments.
“If during the second year of the GST regime, the above issues are resolved, the impact of GST on real estate would be far-reaching and positive in all terms,” concluded Dr. Niranjan Hiranandani.